<PAGE>
As Filed with the Securities and Exchange Commission On June 2, 1999
File Nos. 33-59692 and 811-7584
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933(X)
Pre-Effective Amendment No.___( )
Post-Effective Amendment No.34 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940(X)
Amendment No. 35 (X)
RYDEX SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(Address of Principal Executive Offices) (Zip Code)
(301) 468-8520
(Registrant's Telephone Number, Including Area Code)
Albert P. Viragh, Jr.
6116 Executive Boulevard
Suite 400
Rockville, Maryland 20852
(Name and Address of Agent for Service of Process)
Copies to:
John H. Grady, Jr., Esq.
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
It is proposed that this filing will become effective (check appropriate box):
__ immediately upon filing pursuant to paragraph (b) of rule 485
__ on (date) pursuant to paragraph (b)(1)(v) of rule 485
X 60 days after filing pursuant to paragraph (a)(1) of rule 485
__ on (date) pursuant to paragraph (a)(1) of rule 485
__ 75 days after filing pursuant to paragraph (a)(2) of rule 485
__ on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
__ This post-effective amendment designates a new effective date for a
previously-filed post-effective amendment.
<PAGE>
PROSPECTUS -- ADVISOR CLASS
<TABLE>
<C> <S>
1 INTRODUCTION
---
2 BANKING FUND
---
4 BASIC MATERIALS FUND
---
6 BIOTECHNOLOGY FUND
---
8 CONSUMER PRODUCTS FUND
---
10 ELECTRONIC FUND
---
12 ENERGY FUND
---
14 ENERGY SERVICES FUND
---
16 FINANCIAL SERVICES FUND
---
18 HEALTH CARE FUND
---
20 LEISURE FUND
---
22 RETAILING FUND
---
24 TECHNOLOGY FUND
---
26 TELECOMMUNICATIONS FUND
---
28 TRANSPORTATION FUND
---
30 MORE INFORMATION ABOUT RISK
---
32 SHAREHOLDER INFORMATION
---
37 MANAGEMENT
---
38 DIVIDENDS, DISTRIBUTIONS AND TAXES
---
41 FINANCIAL HIGHLIGHTS
---
BC ADDITIONAL INFORMATION
---
</TABLE>
AUGUST 1, 1999
RYDEX SERIES TRUST
SECTOR FUNDS
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
1-800 301-468-8520
Rydex Series Trust (the "Trust") is a no-load mutual fund complex with
twenty-two separate investment portfolios (the "Rydex Funds"), fourteen of which
are described in this Prospectus (the "Funds"). Advisor Class Shares of the
Funds are sold principally through broker-dealers and other financial
institutions whose clients take part in certain strategic and tactical
asset-allocation investment programs.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRUST'S SHARES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
ICON LEGEND
Fund Objective
[ICON]
The fund's particular investment goal.
Portfolio Investments
[ICON]
The primary types of securities in which the fund invests.
Risk Considerations
[ICON]
The major risk factors associated with the fund.
Fund Fee Information
[ICON]
The overall costs incurred by an investor in the fund.
Financial Highlights
[ICON]
A table showing the fund's financial performance.
ii
<PAGE>
PROSPECTUS 1
--------
INTRODUCTION
THE FUNDS' INVESTMENT OBJECTIVE
Each Fund seeks capital appreciation by investing in companies which operate
in a specific economic sector.
THE ADVISOR'S INVESTMENT METHODOLOGY
In managing the Funds, PADCO Advisors, Inc.'s (the "Advisor") investment
team employs a quantitative model that considers a number of factors. To develop
a liquid portfolio of stocks that adequately represents a particular market
sector, the Advisor applies filters to the broad universe of stocks of issuers
that are "principally engaged" in business activities in each industry sector.
Specifically, the Advisor's investment process screens stocks primarily based on
liquidity, market capitalization, and correlation relative to the entire
industry sector. The Advisor also may consider other factors.
The Advisor monitors the Funds' portfolios on an ongoing basis, and adds or
deletes stocks from the portfolios as needed.
After constructing a portfolio for each Fund, the Advisor may utilize
futures contracts and options to leverage a Fund's exposure to the relevant
business sector. The use of leverage will result in each Fund being exposed to
its relevant business sector with more than 100% of its total assets.
Each business sector typically consists of numerous industries. For purposes
of the Advisor's investment methodology and the policies for each Fund, a
company is considered to be "principally engaged" in a designated business
activity in a particular economic sector if at least 50% of its assets, gross
income, or net profits are committed to, or derived from, that activity. If a
question exists as to whether a company meets these standards, the Advisor will
determine whether the company's primary business is within the business sector
designated for investment by that Fund.
RISKS OF INVESTING IN THE FUNDS
Your investment in the Funds is subject to certain risks. Some of the risks
that are common to each of the Funds are discussed below.
- NON-DIVERSIFICATION RISK -- Since each Fund is non-diversified, each Fund
may invest in the securities of a relatively few number of issuers. To the
extent that a Fund invests a significant percentage of its assets in a
limited number of issuers, the Fund is subject to the risks of investing
in those few issuers, and may be more susceptible to a single adverse
economic or regulatory occurrence.
- CONCENTRATION RISK -- Since the Funds invest in the securities of a
limited number of issuers conducting business in a specific industry, it
is subject to the risk that those issuers (or that industry) will perform
poorly, and the Fund will be negatively impacted by that poor performance.
THE INVESTMENT OBJECTIVE OF EACH FUND IS NON-FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL. THERE CAN BE NO ASSURANCE THAT A FUND WILL ACHIEVE
ITS INVESTMENT OBJECTIVE.
<PAGE>
- ------
2 PROSPECTUS
FUND INFORMATION -- BANKING FUND
FUND OBJECTIVE
[ICON]
The Banking Fund seeks to provide capital appreciation by investing in
companies that are involved in the banking sector, including commercial banks
(and their holding companies) and savings and loan institutions ("Banking
Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Banking Companies that are traded in the United
States. Banking Companies are engaged in accepting deposits and making
commercial and principally non-mortgage consumer loans and include state
chartered banks, savings and loan institutions, and banks that are members of
the Federal Reserve System. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Banking Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- BANKING SECTOR CONCENTRATION RISK -- The risk that the securities of
Banking Companies that the Fund purchases will underperform the market as
a whole. To the extent that the Fund's investments are concentrated in
Banking Companies, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
Banking Companies. The prices of the securities of Banking Companies may
fluctuate widely due to the broadening of regional and national interstate
banking powers, the reduction in the number of publicly-traded Banking
Companies, and general economic conditions which could create exposure to
credit losses, and are dependent to a greater or lesser extent on changes
in the interest rate.
<PAGE>
PROSPECTUS 3
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Banking Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Banking Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
4 PROSPECTUS
FUND INFORMATION -- BASIC MATERIALS FUND
FUND OBJECTIVE
[ICON]
The Basic Materials Fund seeks capital appreciation by investing in
companies engaged in the mining, manufacture, or sale of basic
materials, such as lumber, steel, iron, aluminum, concrete, chemicals and other
basic building and manufacturing materials ("Basic Materials Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Basic Materials Companies that are traded in the
United States. Basic Materials Companies are engaged in the manufacture, mining,
processing, or distribution of raw materials and intermediate goods used in the
industrial sector, and may be involved in the production of metals, textiles,
and wood products, including equipment suppliers and railroads. The Fund may
also engage in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Basic Materials Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- BASIC MATERIALS SECTOR CONCENTRATION RISK -- The risk that the securities
of issuers in the basic materials sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Basic Materials Companies
may fluctuate widely due to the level and volatility of commodity prices,
the exchange value of the dollar, import controls, worldwide competition,
liability for environmental damage, depletion of resources, and mandated
expenditures for safety and pollution control devices.
<PAGE>
PROSPECTUS 5
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Basic Materials Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Basic Materials Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
6 PROSPECTUS
FUND INFORMATION -- BIOTECHNOLOGY FUND
FUND OBJECTIVE
[ICON]
The Biotechnology Fund seeks capital appreciation by investing in
companies that are involved in the biotechnology industry, including
companies involved in research and development, genetic or other biological
engineering, and in the design, manufacture, or sale of related biotechnology
products or services ("Biotechnology Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Banking Companies that are traded in the United
States. Biotechnology Companies are engaged in the research, development, and
manufacture of various biotechnological products, services, and processes;
manufacture and/or distribute biotechnological and biomedical products,
including devices and instruments; provide or benefit significantly from
scientific and technological advances in biotechnology; or provide processes or
services instead of, or in addition to, products. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Biotechnology Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- BIOTECHNOLOGY SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the biotechnology sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Biotechnology Companies
may fluctuate widely due to patent considerations, intense competition,
rapid technological change and obsolescence, and regulatory requirements
of the Food and Drug Administration, the Environmental Protection Agency,
state and local governments, and foreign regulatory authorities.
- SMALL ISSUER RISK -- Many Biotechnology Companies are relatively small and
have thinly traded equity securities, may not yet offer products or offer
a single product, and may have persistent losses during a new product's
transition from development to production or erratic revenue patterns.
<PAGE>
PROSPECTUS 7
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Biotechnology Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Biotechnology Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
- ------
8 PROSPECTUS
FUND INFORMATION -- CONSUMER PRODUCTS FUND
FUND OBJECTIVE
[ICON]
The Consumer Products Fund seeks capital appreciation by investing in
companies engaged in manufacturing finished goods and services both domestically
and internationally ("Consumer Products Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Consumer Products Companies that are traded in
the United States. Consumer Products Companies include companies that
manufacture, wholesale or retail durable goods such as major appliances and
personal computers, or that retail non-durable goods such as beverages, tobacco,
health care products, household and personal care products, apparel, and
entertainment products (E.G., books, magazines, TV, cable, movies, music,
gaming, sports), as well as companies that provide consumer products and
services such as lodging, child care, convenience stores, and car rentals. The
Fund may also engage in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Consumer Products Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- CONSUMER PRODUCTS SECTOR CONCENTRATION RISK -- The risk that the
securities of issuers in the consumer products sector that the Fund
purchases will underperform the market as a whole. To the extent that the
Fund's investments are concentrated in issuers conducting business in the
same economic sector, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
that economic sector. The performance of Consumer Products Companies has
historically been closely tied to the performance of the overall economy,
and is also affected by interest rates, competition, consumer confidence
and relative levels of disposable household income and seasonal consumer
spending. Changes in demographics and consumer tastes can also affect the
demand for, and success of, consumer products in the marketplace.
<PAGE>
PROSPECTUS 9
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Consumer Products Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Consumer Products Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
10 PROSPECTUS
FUND INFORMATION -- ELECTRONICS FUND
FUND OBJECTIVE
[ICON]
The Electronics Fund seeks capital appreciation by investing in
companies that are involved in the electronics sector, including
semiconductor manufacturers and distributors, and makers and vendors of other
electronic components and devices ("Electronics Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Electronics Companies that are traded in the
United States. Electronics Companies include companies involved in the
manufacture and development of semiconductors, connectors, printed circuit
boards and other components; equipment vendors to electronic component
manufacturers; electronic component distributors; electronic instruments and
electronic systems vendors; and also include companies involved in all aspects
of the electronics business and in new technologies or specialty areas such as
defense electronics, advanced design and manufacturing technologies, or lasers.
The Fund may also engage in futures and options transactions, purchase ADRs and
U.S. Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Electronics Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- ELECTRONICS SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the electronics sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Electronics Companies may
fluctuate widely due to risks of rapid obsolescence of products, intense
competition, the economic performance of their customers, high technology
and research costs (especially in light of decreased defense spending by
the U.S. Government), and may face competition from subsidized foreign
competitors with lower production costs.
<PAGE>
PROSPECTUS 11
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Electronics Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Electronics Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
12 PROSPECTUS
FUND INFORMATION -- ENERGY FUND
FUND OBJECTIVE
[ICON]
The Energy Fund seeks capital appreciation by investing in companies
involved in the energy field, including the exploration, production, and
development of oil, gas, coal and alternative sources of energy ("Energy
Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Energy Companies that are traded in the United
States. Energy Companies are involved in all aspects of the energy industry,
including the conventional areas of oil, gas, electricity, and coal, and
alternative sources of energy such as nuclear, geothermal, oil shale, and solar
power, and include companies that produce, transmit, market, distribute or
measure energy; companies involved in providing products and services to
companies in the energy field; and companies involved in the exploration of new
sources of energy, conservation, and energy-related pollution control. The Fund
may also engage in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Energy Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- ENERGY SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the energy sector that the Fund purchases will underperform the
market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
The prices of the securities of Energy Companies may fluctuate widely due
to changes in value and dividend yield, which depend largely on the price
and supply of energy fuels, events relating to international politics,
energy conservation, the success of exploration projects, and tax and
other governmental regulatory policies.
<PAGE>
PROSPECTUS 13
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Energy Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Energy Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
14 PROSPECTUS
FUND INFORMATION -- ENERGY SERVICES FUND
FUND OBJECTIVE
[ICON]
The Energy Services Fund seeks capital appreciation by investing in
companies that are involved in the energy services field, including
those that provide services and equipment in the areas of oil, coal, and gas
exploration and production ("Energy Services Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Energy Services Companies that are traded in the
United States. Energy Services Companies are engaged in one or more businesses
in the energy service field, including those that provide services and equipment
to companies engaged in the production, refinement or distribution of oil, gas,
electricity, and coal; companies involved with the production and development of
newer sources of energy such as nuclear, geothermal, oil shale, and solar power;
companies involved with onshore or offshore drilling; companies involved in
production and well maintenance; companies involved in exploration engineering,
data and technology; companies involved in energy transport; and companies
involved in equipment and plant design or construction. The Fund may also engage
in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Energy Services Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- ENERGY SERVICES SECTOR CONCENTRATION RISK -- The risk that the securities
of issuers in the energy services sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Energy Services Companies
may fluctuate widely due to the supply and demand both for their specific
products or services and for energy products in general, the price of oil
and gas, exploration and production spending, governmental regulation and
environmental issues, and world events and economic conditions generally
affecting energy supply companies.
<PAGE>
PROSPECTUS 15
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Energy Services Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Energy Services Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
16 PROSPECTUS
FUND INFORMATION -- FINANCIAL SERVICES FUND
FUND OBJECTIVE
[ICON]
The Financial Services Fund seeks capital appreciation by investing in
companies that are involved in the financial services sector. ("Financial
Services Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Financial Services Companies that are traded in
the United States. Financial Service Companies include commercial banks, savings
and loan associations, insurance companies, brokerage companies, and real estate
and leasing companies. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements. Under SEC regulations, the Fund may not invest more than
5% of its total assets in the equity securities of any company that derives more
than 15% of its revenues from brokerage or investment management activities.
RISK CONSIDERATIONS
[ICON]
The Financial Services Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- FINANCIAL SERVICES SECTOR CONCENTRATION RISK -- The risk that the
securities of issuers in the financial services sector that the Fund
purchases will underperform the market as a whole. To the extent that the
Fund's investments are concentrated in issuers conducting business in the
same economic sector, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
that economic sector. Financial Services Companies are subject to
extensive governmental regulation, which may limit both the amounts and
types of loans and other financial commitments they can make, and the
rates and fees they can charge. Profitability is largely dependent on the
availability and cost of capital, and can fluctuate significantly when
interest rates change. Credit losses resulting from financial difficulties
of borrowers also can negatively impact the sector.
<PAGE>
PROSPECTUS 17
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Financial Services Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Financial Services Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
18 PROSPECTUS
FUND INFORMATION -- HEALTH CARE FUND
FUND OBJECTIVE
[ICON]
The Health Care Fund seeks capital appreciation by investing in
companies that are involved in the health care industry ("Health Care
Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Health Care Companies that are traded in the
United States. Health Care Companies include pharmaceutical companies, companies
involved in research and development of pharmaceutical products and services,
companies involved in the operation of health care facilities, and other
companies involved in the design, manufacture, or sale of health care-related
products or services. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Health Care Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- HEALTH CARE SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the health care sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Health Care Companies may
fluctuate widely due to government regulation and approval of their
products and services, which can have a significant effect on their price
and availability. Furthermore, the types of products or services produced
or provided by these companies may quickly become obsolete. Moreover,
liability for products that are later alleged to be harmful or unsafe may
be substantial, and may have a significant impact on a Health Care
Company's market value and/or share price.
<PAGE>
PROSPECTUS 19
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Health Care Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Health Care Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
20 PROSPECTUS
FUND INFORMATION -- LEISURE FUND
FUND OBJECTIVE
[ICON]
The Leisure Fund seeks capital appreciation by investing in companies
engaged in leisure and entertainment businesses. ("Leisure Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Leisure Companies that are traded in the United
States. Leisure Companies are engaged in the design, production, or distribution
of goods or services in the leisure industries. Leisure Companies include hotels
and resorts, casinos, radio and television broadcasting and advertising, motion
picture production, toys and sporting goods manufacture, musical recordings and
instruments, alcohol and tobacco, and publishing. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Leisure Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- LEISURE SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the leisure sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
Securities of Leisure Companies may be considered speculative, and
generally exhibit greater volatility than the overall market. The prices
of the securities of Leisure Companies may fluctuate widely due to
unpredictable earnings, due in part to changing consumer tastes and
intense competition, strong reaction to technological developments and to
the threat of increased government regulation, particularly in the gaming
arena.
<PAGE>
PROSPECTUS 21
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Leisure Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Leisure Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
22 PROSPECTUS
FUND INFORMATION -- RETAILING FUND
FUND OBJECTIVE
[ICON]
The Retailing Fund seeks capital appreciation by investing in
companies engaged in merchandising finished goods and services,
including department stores, restaurant franchises, mail order operations and
other companies involved in selling products to consumers ("Retailing
Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Retailing Companies that are traded in the United
States. Retailing Companies include drug and department stores; suppliers of
goods and services for homes, home improvements and yards; clothing, jewelry,
electronics and computer retailers; franchise restaurants; motor vehicle and
marine dealers; warehouse membership clubs; mail order operations; and companies
involved in alternative selling methods. The Fund may also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Retailing Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- RETAILING SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the retailing sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
The prices of the securities of Retailing Companies may fluctuate widely
due to consumer spending, which is affected by general economic conditions
and consumer confidence levels. The retailing industry is highly
competitive, and a Retailing Company's success is often tied to its
ability to anticipate and react to changing consumer tastes. Many
Retailing Companies are thinly capitalized, and are dependent upon a
relatively few number of business days to achieve their overall results.
<PAGE>
PROSPECTUS 23
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Retailing Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Retailing Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
24 PROSPECTUS
FUND INFORMATION -- TECHNOLOGY FUND
FUND OBJECTIVE
[ICON]
The Technology Fund seeks capital appreciation by investing in
companies that are involved in the technology sector, including
computer software and service companies, semiconductor manufacturers, networking
and telecommunications equipment manufacturers, PC hardware and peripherals
companies ("Technology Companies")
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Technology Companies that are traded in the
United States. Technology Companies are companies which the Advisor believes
have, or will develop, products, processes, or services that will provide or
will benefit significantly from technological advances and improvements. These
companies may include, for example, companies that develop, produce or
distribute products or services in the computer, semiconductor, electronics,
communications, health care, and biotechnology sectors. The Fund may also engage
in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Technology Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- TECHNOLOGY SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the technology sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
The prices of the securities of Technology Companies may fluctuate widely
due to competitive pressures, increased sensitivity to short product
cycles and aggressive pricing, problems relating to bringing their
products to market, very high price/ earnings ratios, and high personnel
turnover due to severe labor shortages for skilled technology
professionals.
- SMALL ISSUER RISK -- Many Technology Companies are relatively small and
have thinly traded securities, may offer only one or a limited number of
rapidly obsolescing products, and may have persistent losses during a new
product's transition from development to production.
<PAGE>
PROSPECTUS 25
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Technology Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Technology Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
26 PROSPECTUS
FUND INFORMATION -- TELECOMMUNICATIONS FUND
FUND OBJECTIVE
[ICON]
The Telecommunications Fund seeks capital appreciation by investing in
companies engaged in the development, manufacture, or sale of communications
services or communications equipment ("Telecommunications Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Telecommunications Companies that are traded in
the United States. Telecommunications Companies range from traditional local and
long-distance telephone services or equipment providers, to companies involved
in developing technologies such as cellular telephone or paging services,
Internet equipment and service providers, and fiber-optics. The Fund may also
engage in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements. Although many established
Telecommunications Companies pay an above-average dividend, the Fund's
investment decisions are primarily based on growth potential and not on income.
RISK CONSIDERATIONS
[ICON]
The Telecommunications Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- TELECOMMUNICATIONS SECTOR CONCENTRATION RISK -- The risk that the
securities of issuers in the telecommunications sector that the Fund
purchases will underperform the market as a whole. To the extent that the
Fund's investments are concentrated in issuers conducting business in the
same economic sector, the Fund is subject to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting
that economic sector. The prices of the securities of Telecommunications
Companies may fluctuate widely due to both federal and state regulations
governing rates of return and services that may be offered, fierce
competition for market share, and competitive challenges in the U.S. from
foreign competitors engaged in strategic joint ventures with U.S.
companies, and in foreign markets from both U.S. and foreign competitors.
In addition, recent industry consolidation trends may lead to increased
regulation of Telecommunications Companies in their primary markets.
<PAGE>
PROSPECTUS 27
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Telecommunications Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Telecommunications Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
28 PROSPECTUS
FUND INFORMATION -- TRANSPORTATION FUND
FUND OBJECTIVE
[ICON]
The Transportation Fund seeks capital appreciation by investing in
companies engaged in providing transportation services or companies
engaged in the design, manufacture, distribution, or sale of transportation
equipment ("Transportation Companies").
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in a portfolio of
equity securities of Transportation Companies that are traded in the
United States. Transportation Companies may include, for example, companies
involved in the movement of freight or people, such as airline, railroad, ship,
truck and bus companies; equipment manufacturers (including makers of trucks,
automobiles, planes, containers, railcars or other modes of transportation and
related products); parts suppliers; and companies involved in leasing,
maintenance, and transportation-related services. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Transportation Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- TRANSPORTATION SECTOR CONCENTRATION RISK -- The risk that the securities
of issuers in the transportation sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
economic sector, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
economic sector. The prices of the securities of Transportation Companies
may fluctuate widely due to their cyclical nature, occasional sharp price
movements which may result from changes in the economy, fuel prices, labor
agreements, and insurance costs, the recent trend of government
deregulation, and increased competition from foreign companies, many of
which are partially funded by foreign governments and which may be less
sensitive to short-term economic pressures.
<PAGE>
PROSPECTUS 29
--------
FUND FEE INFORMATION
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Advisor Class Shares of the Transportation Fund.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees %
Distribution (12b-1) Fees %
Other Expenses %
---------
Total Annual Fund Operating Expenses %
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Transportation Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------
<S> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
- ------
30 PROSPECTUS
MORE INFORMATION ABOUT RISK
As indicated below, the Funds are subject to a number of risks that may
affect the value of Fund shares.
TRADING HALT RISK -- The Funds typically will hold short-term options and
futures contracts. The major exchanges on which these contracts are traded, such
as the Chicago Mercantile Exchange ("CME"), have established limits on how much
an option or futures contract may decline over various time periods within a
day. If an option or futures contract's price declines more than the established
limits, trading on the exchange is halted on that instrument. If a trading halt
occurs at the close of a trading day, a Fund may not be able to purchase or sell
options or futures contracts. In such an event, a Fund also may be required to
use a "fair-value" method to price its outstanding contracts.
LEVERAGING RISK -- The Funds may invest a percentage of their assets in
leveraged instruments. The more a Fund invests in these leveraged instruments,
the more this leverage will magnify the Fund's gains or losses on those
investments. Leveraging activities include, among other things, borrowing and
the use of short sales, options and futures. There are risks associated with
leveraging activities, including:
- A Fund experiencing losses over certain ranges in the market that exceed
losses experienced by a non-leveraged Fund.
- There may be an imperfect or no correlation between the changes in market
value of the securities held by a Fund and the prices of futures and
options on futures.
- Although the Fund will only purchase exchange-traded futures and options,
due to market conditions there may not be a liquid secondary market for a
futures contract or option. As a result, the Fund may be unable to close
out their futures or options contracts at a time which is advantageous.
- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.
In addition, the following leveraged instruments are subject to certain specific
risks:
FUTURES RISK -- Futures contracts and options on futures contracts provide
for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. An option on a futures contract gives the purchaser the
right, in exchange for a premium, to assume a position in a futures contract
at a specified exercise price during the term of the option. Index futures
are futures contracts for various indices that are traded on registered
securities exchanges.
The Fund may use futures contracts and related options for bona fide hedging
purposes to offset changes in the value of securities held or expected to be
acquired. They may also be used to gain exposure to a particular market or
instrument, to create a synthetic money market position, and
<PAGE>
PROSPECTUS 31
--------
for certain other tax-related purposes. The Fund will only enter into
futures contracts traded on a national futures exchange or board of trade.
OPTIONS RISK -- The buyer of an option acquires the right to buy (a call
option) or sell (a put option) a certain quantity of a security (the
underlying security) or instrument at a certain price up to a specified
point in time. The seller or writer of an option is obligated to sell (a
call option) or buy (a put option) the underlying security. When writing
(selling) call options on securities, the Fund may cover its position by
owning the underlying security on which the option is written or by owning a
call option on the underlying security. Alternatively, the Fund may cover
its position by maintaining in a segregated account cash or liquid
securities equal in value to the exercise price of the call option written
by the Fund.
Because option premiums paid or received by the Fund are small in relation
to the market value of the investments underlying the options, buying and
selling put and call options can be more speculative than investing directly
in securities.
SHORT SALES RISK -- Short sales are transactions in which a Fund sells a
security it does not own. To complete the transaction, the Fund must borrow
the security to make delivery to the buyer. The Fund is then obligated to
replace the security borrowed by purchasing the security at the market price
at the time of replacement. The price at such time may be more or less than
the price at which the security was sold by the Fund.
PORTFOLIO TURNOVER RATE RISK -- The Trust anticipates that investors that are
part of a tactical or strategic asset-allocation strategy will frequently redeem
or exchange shares of a Fund, which will cause that Fund to experience high
portfolio turnover. A higher portfolio turnover rate may result in a Fund paying
higher levels of transaction costs and generating greater tax liabilities for
shareholders.
EARLY CLOSING RISK -- The normal close of trading of securities listed on the
National Association of Securities Dealers Automated Quotations system
("NASDAQ") and the New York Stock Exchange ("NYSE") is 4:00 P.M., Eastern Time.
Unanticipated early closings may result in a Fund being unable to sell or buy
securities on that day. If an exchange closes early on a day when one or more of
the Funds needs to execute a high volume of securities trades late in a trading
day, a Fund might incur substantial trading losses.
FOREIGN COMPANY RISKS -- Investments in securities of foreign companies can be
more volatile than investments in U.S. companies. Diplomatic, political, or
economic developments could affect investments in foreign countries. Foreign
companies generally are not subject to uniform accounting, auditing, and
financial reporting standards comparable to those applicable to U.S. domestic
companies.
<PAGE>
- ------
32 PROSPECTUS
SMALL ISSUER RISK -- Small and medium capitalization companies may be more
vulnerable than larger, more established organizations to adverse business or
economic developments. In particular, small capitalization companies may have
limited product lines, markets, and financial resources and may be dependent
upon a relatively small management group. These securities may trade over-the-
counter or listed on an exchange and may or may not pay dividends.
YEAR 2000 RISK -- The Funds depend on the smooth functioning of computer systems
in almost every aspect of their business. Like other mutual funds, businesses
and individuals around the world, the Funds could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Trust has asked their service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and received
assurances from all that they are devoting significant resources to prevent
material adverse consequences to the Funds. The Funds and their respective
shareholders may experience losses if these assurances prove to be incorrect or
as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others with which the Funds do business.
SHAREHOLDER INFORMATION
HOW TO INVEST IN THE FUNDS
PURCHASING SHARES
Advisor Class Shares are offered continuously through intermediaries and may
be purchased on any day that the NYSE is open for business (a "Business Day").
The price per share (the offering price) will be the net asset value per share
("NAV") next determined after your purchase order is received by the Trust. No
sales charges are imposed on initial or subsequent investments in a Fund. NAV is
calculated by (1) taking the current market value of a Fund's total assets, (2)
subtracting the liabilities, and (3) dividing that amount by the total number of
shares owned by shareholders. For most Funds, the NAV for the Sector Funds is
calculated once each Business Day after the close of the New York Stock Exchange
(currently, 4:00 p.m., Eastern Time). If the exchange or market where a Fund's
securities or other investments are primarily traded closes early, the NAV may
be calculated earlier. To receive the current Business Day's NAV, the Trust must
receive your purchase order before the cutoff times specified below for each
method of investing. Intermediaries may have earlier cutoff times.
MINIMUM INVESTMENT
If an intermediary such as a broker-dealer or other financial institution
has discretionary authority over your account, the minimum initial investment in
the Advisor Class Shares of the Sector Funds is $25,000. This minimum also
applies to retirement plan accounts. The Trust, at its discretion, may accept
lesser amounts in certain circumstances. Intermediaries may charge fees for
services provided in
<PAGE>
PROSPECTUS 33
--------
connection with buying, selling or exchanging shares. Each intermediary also may
have its own rules about share transactions. For more information about how to
purchase shares through an intermediary, you should contact that intermediary
directly. If you invest in the Trust without designating which Fund you want to
invest in on your account application, your check or your wire advice, your
money will be invested in the U.S. Government Money Market Fund until you tell
us where to invest your money. There is no minimum amount for subsequent
investments in a Fund. The Trust reserves the right to modify its minimum
investment requirements at any time. The Trust also reserves the right to reject
or refuse, at the Trust's discretion, any order for the purchase of a Fund's
shares in whole or in part.
Investments in the Funds may be made only through intermediaries or
securities dealers who have the responsibility to transmit orders promptly and
who may charge a processing fee.
BY MAIL
Initial applications and investments, as well as subsequent investments, in
the Funds made BY MAIL must be received in good form by the Trust, on any
Business Day, at or prior to 2:00 p.m., Eastern Time, in order to be processed
for that Business Day's NAV. Fill out an application and make a check payable to
"Rydex Series Trust." Mail the check, along with the application to:
Rydex Series Trust
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
IN ADDITION TO CHARGES DESCRIBED ELSEWHERE IN THIS PROSPECTUS, THE TRUST ALSO
MAY CHARGE $25.00 FOR CHECKS RETURNED FOR INSUFFICIENT OR UNCOLLECTIBLE FUNDS.
BY BANK WIRE TRANSFER
First, fill out an application and fax the completed application, along with
a request for a shareholder account number, to the Trust at 301-468-8585. Then,
request that your bank wire transfer the purchase amount to our custodian,
Firstar, along with the following instructions:
Firstar
Cincinnati, Ohio
Routing Number: 0420-00013
For Account of Rydex Series Trust
Trust Account Number: 48038-9030
[Your Name]
[Your Shareholder Account Number and Fund Designation]
<PAGE>
- ------
34 PROSPECTUS
AFTER INSTRUCTING YOUR BANK TO TRANSFER MONEY BY WIRE (YOUR BANK MAY CHARGE A
FEE FOR SUCH SERVICES) FOR BOTH INITIAL AND SUBSEQUENT PURCHASES, YOU MUST CALL
THE TRUST AT 1-800-820-0888 AND INFORM THE TRUST AS TO THE AMOUNT THAT YOU HAVE
TRANSFERRED AND THE NAME OF THE BANK SENDING THE TRANSFER IN ORDER TO OBTAIN
SAME-DAY PRICING OR CREDIT. FOR INITIAL PURCHASES, YOU MUST ALSO SUPPLY THE TIME
THE WIRE WAS SENT AND THE FED WIRE REFERENCE NUMBER. IF THE PURCHASE IS CANCELED
BECAUSE YOUR WIRE TRANSFER IS NOT RECEIVED, YOU MAY BE LIABLE FOR ANY LOSS THAT
THE TRUST INCURS.
Wire transfers for both initial investments (which must be preceded by a
faxed application) and subsequent investments in the Funds must be received in
good form at the Trust, on any Business Day, at or prior to the cutoff time of
the Funds as outlined in the "EXCHANGES" section in order to be processed at
that Business Day's NAV. An initial application that is faxed to the Trust does
not constitute a purchase order until the application has been processed and
correct payment by check or wire transfer has been received by the Trust.
Intermediaries may have earlier cutoff times for purchases. For more information
about how to purchase through an intermediary, you should contact that
intermediary directly.
TAX-QUALIFIED RETIREMENT PLANS
Investors may purchase shares of the Funds through any of the following
types of tax-qualified retirement plans:
Individual Retirement Accounts (IRAs, including Roth IRAs)
Keogh Accounts -- Defined Contribution Plans (Profit Sharing Plans)
Keogh Accounts -- Pension Plans (Money Purchase Plans)
Internal Revenue Code Section 403(b) Plans
For retirement plan accounts that have engaged an intermediary with
discretionary authority over the retirement plan account with the Trust, the
minimum initial investment in Advisor Class Shares of the Funds is $25,000.
Retirement plans are charged an annual $15.00 maintenance fee and a $15.00
account closing fee. Additional information regarding these accounts, including
the annual maintenance fee, may be obtained by calling 1-800-820-0888 or
301-468-8520.
REDEEMING FUND SHARES
GENERAL
You may redeem all or any portion of your Fund shares at the next determined
NAV after receipt of the redemption request (subject to applicable account
minimums). You may redeem your shares by letter or by telephone subject to the
procedures set forth below. Your redemption proceeds normally will be sent
within five Business Days of the Trust receiving your request. For investments
made by
<PAGE>
PROSPECTUS 35
--------
check, payment on redemption requests may be delayed until the Trust's transfer
agent is reasonably satisfied that payment has been collected by the Trust
(which may require up to 10 Business Days). If you invest by check, you may not
wire out any redemption proceeds for the 30 calendar days following the
purchase. You may avoid a delay in receiving redemption proceeds by purchasing
shares with a certified check. Telephone redemptions will be sent only to your
address or your bank account (as listed in the Trust's records). The Trust may
charge $15 for certain wire transfers of redemption proceeds.
The proceeds of non-telephone redemptions will be sent directly to your
address (as listed in the Trust's records). If you request payment of redemption
proceeds to a third party or to a location other than your address or your bank
account (as listed in the Trust's records), this request must be in writing and
must include a signature guarantee. You may have to transmit your redemption
request to your intermediary at an earlier time in order for your redemption to
be effective that Business Day. Please contact your intermediary to find out
their specific requirements for written and telephone requests for redemptions
and signature guarantees.
REDEMPTIONS FROM TAX-QUALIFIED RETIREMENT PLANS MAY HAVE ADVERSE TAX
CONSEQUENCES. YOU SHOULD CONSULT YOUR TAX ADVISOR BEFORE REDEEMING SHARES FROM
YOUR TAX-QUALIFIED ACCOUNT.
INVOLUNTARY REDEMPTIONS
Because of the administrative expense of handling small accounts, any
request for a redemption when your account balance (a) is below the currently
applicable minimum investment, or (b) would be below that minimum as a result of
the redemption, will be treated as a request for the complete redemption of that
account. If, due to withdrawals or transfers, your account balance drops below
the required minimum of $25,000, the Trust reserves the right to redeem your
remaining shares without any additional notification to you.
SUSPENSION OF REDEMPTIONS
With respect to each Fund, and as permitted by the Securities and Exchange
Commission ("Commission"), the right of redemption may be suspended, or the date
of payment postponed: (i) for any period during which the NYSE, the Federal
Reserve Bank of New York (the "New York Fed"), NASDAQ, the CME or the Chicago
Board Options Exchange ("CBOE") as appropriate, is closed (other than customary
weekend or holiday closings) or trading on the NYSE, NASDAQ, the CME or the CBOE
as appropriate, is restricted; (ii) for any period during which an emergency
exists so that disposal of Fund investments or the determination of NAV is not
reasonably practicable; or (iii) for such other periods as the Commission, by
order, may permit for protection of Fund investors. On any day that the New York
Fed or the NYSE closes early, the principal government securities and
<PAGE>
- ------
36 PROSPECTUS
corporate bond markets close early (such as on days in advance of holidays
generally observed by participants in these markets), or as permitted by the
Commission, the right is reserved to advance the time on that day by which
purchase and redemption orders must be received.
EXCHANGES
You may exchange Advisor Class Shares of any Fund for Advisor Class Shares
of any other Rydex Fund that currently offers shares, or for shares of any other
Rydex Fund that does not offer Advisor Class Shares, on the basis of the
respective net asset values of the shares involved. The Trust currently is
composed of twenty-two separate Funds. Advisor Class Shares of four Benchmark
Funds and the U.S. Government Money Market Fund and Investor Class Shares of
certain Funds are offered in separate prospectuses. Exchanges may be made by
letter or by telephone subject to the procedures set forth below.
To exchange your shares, you need to provide certain information, including
the name on the account, the account number (or your taxpayer identification
number), the number or dollar value of shares (or the percentage of the total
value of your account) you want to exchange, and the names of the Rydex Funds
involved in the exchange transaction. If you are contemplating an exchange for
shares of a Rydex Fund not described in this Prospectus, you should obtain and
review the current prospectus of that Rydex Fund before making the exchange.
Exchange orders into other Rydex Funds must be received by the time set
forth below for either the relevant Rydex Fund from which an exchange is being
made and into which an exchange is being made (whichever is earlier):
<TABLE>
<CAPTION>
FUND(S) CUT OFF TIME
- ----------------------------------------------------------------------------------------------
<S> <C>
Nova 3:45 p.m.
Ursa
OTC
Arktos
- ----------------------------------------------------------------------------------------------
Sector Funds
Precious Metals 3:30 p.m.
- ----------------------------------------------------------------------------------------------
U.S. Government Bond 2:45 p.m.
Juno
- ----------------------------------------------------------------------------------------------
</TABLE>
The exchange privilege may be modified or discontinued at any time.
<PAGE>
PROSPECTUS 37
--------
PROCEDURES FOR REDEMPTIONS AND EXCHANGES
Written requests for redemptions and exchanges should be sent to Rydex
Series Trust, 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852,
and should be signed by the record owner or owners. With proper authorization,
telephone and electronic redemption and transfer requests are also permitted.
Telephone redemption and exchange requests may be made by calling 1-800-820-0888
or 301-468-8520 by 3:30 p.m., Eastern Time, or by any earlier cutoff time
specified above for exchanges between Funds, on any Business Day. The Trust
reserves the right to suspend the right of redemption in accordance with this
Prospectus. The Trust's offices are open between 8:30 a.m. and 5:30 p.m.,
Eastern Time on each Business Day.
If you own shares that are registered in your intermediary's name, and you
want to transfer the registration to another intermediary or want the shares
registered in your name, then you should contact your intermediary for
instructions to make this change.
TRANSACTIONS OVER THE TELEPHONE
Telephone redemption and exchange transactions are extremely convenient, but
are not risk-free. To ensure that your telephone transactions are safe, secure,
and as risk-free as possible, the Trust has instituted certain safeguards and
procedures for determining the identity of callers and authenticity of
instructions, including recording telephone inquiries. As a result, neither the
Trust nor its transfer agent will be responsible for any loss, liability, cost,
or expense for following telephone or wire instructions they reasonably believe
to be genuine. If you or your intermediary make exchange or redemption requests
by telephone, you will generally bear the risk of any loss. If you are unable to
reach the Trust by telephone, you may want to try to reach the Trust by other
means.
MANAGEMENT
PADCO Advisors, Inc., (the "Advisor") a Maryland corporation with offices at
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852, serves as
investment advisor and manager of the Funds. Albert P. Viragh, Jr., the Chairman
of the Board and the President of the Advisor, owns a controlling interest in
the Advisor. From 1985 until the incorporation of the Advisor, Mr. Viragh was a
Vice President of Money Management Associates ("MMA"), a Maryland-based
registered investment advisor. From 1992 to June 1993, Mr. Viragh was the
portfolio manager of The Rushmore Nova Portfolio, a series of The Rushmore Fund,
Inc., an investment company managed by MMA.
The Advisor makes investment decisions for the assets of the Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor must follow in its day-to-day management activities. Under an
investment advisory agreement between the Trust and the Advisor, the Funds pay
the
<PAGE>
- ------
38 PROSPECTUS
Advisor a fee at an annualized rate of .85%, based on the average daily net
assets for each Fund. The following represents advisory fees received for the
fiscal period ended March 31, 1999:
<TABLE>
<CAPTION>
FUND FUND
- ------------------------------ -------------------------------
<S> <C> <C> <C>
Banking Fund.............. % Financial Services Fund........ %
Basic Materials Fund...... % Health Care Fund............... %
Biotechnology Fund........ % Leisure Fund................... %
Consumer Products Fund.... % Retailing Fund................. %
Electronics Fund.......... % Technology Fund................ %
Energy Fund............... % Telecommunications Fund........ %
Energy Services Fund...... % Transportation Fund............ %
</TABLE>
The Advisor bears all of its own costs associated with providing these
advisory services and the expenses of the Trustees who are affiliated with the
Advisor. The Advisor may make payments from its own resources to broker-dealers
and other financial institutions in connection with the sale of Fund shares.
Each Sector Fund is managed by a team and no one person is responsible for
making investment decisions for a Fund.
DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
The Funds have adopted a Distribution and Shareholder Services Plan (the
"Plan") applicable to Advisor Class Shares that allows the Funds to pay
distribution and service fees to PADCO Financial Services, Inc. (the
"Distributor") and other firms that provide distribution and shareholder
services ("Service Providers"). If a Service Provider provides distribution
services, the Funds will pay distribution fees to the Distributor at an annual
rate not to exceed .25% of average daily net assets, pursuant to Rule 12b-1 of
the 1940 Act. If a Service Provider provides shareholder services, the Funds
will pay service fees to the Distributor at an annual rate not to exceed .25% of
the average daily net assets of a Fund. The Distributor will, in turn, pay the
Service Provider out of its fees. Because the Funds pay these fees out of assets
on an ongoing basis, over time these fees may cost you more than other types of
sales charges.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Income dividends, if any, are paid at least annually by each of the Funds.
If you own Fund shares on a Fund's record date, you will be entitled to receive
the dividend. The Funds may declare and pay dividends on the same date. The
Funds make distributions of capital gains at least annually.
<PAGE>
PROSPECTUS 39
--------
The Trust, however, may declare a special capital gains distribution if the
Trustees believe that such a distribution would be in the best interest of the
shareholders of a Fund.
You will receive dividends and distributions in the form of additional Fund
shares unless you have elected to receive payment in cash. If you have not
already elected to receive cash payments on your application, you must notify
the Trust in writing prior to the date of distribution. Your election will
become effective for dividends paid after the Trust receives your written
notice. To cancel your election, simply send written notice to the Trust.
Dividends and distributions from a Fund are taxable to you whether they are
reinvested in additional shares of the Fund or are received in cash. You will
receive an account statement at least quarterly.
TAX INFORMATION
The following is a summary of some important tax issues that affect the
Funds and their shareholders. The summary is based on current tax laws, which
may be changed by legislative, judicial or administrative action. The Trust has
not tried to present a detailed explanation of the tax treatment of the Funds,
or of the tax consequences of an investment in the Funds. MORE INFORMATION ABOUT
TAXES IS LOCATED IN THE STATEMENT OF ADDITIONAL INFORMATION (SAI). YOU ARE URGED
TO CONSULT YOUR TAX ADVISOR REGARDING SPECIFIC QUESTIONS AS TO FEDERAL, STATE
AND LOCAL INCOME TAXES.
TAX STATUS OF EACH FUND
Each Fund is treated as a separate entity for federal tax purposes, and
intends to qualify for the special tax treatment afforded regulated investment
companies. As long as a Fund qualifies as a regulated investment company, it
pays no federal income tax on the earnings it distributes to Shareholders.
TAX STATUS OF DISTRIBUTIONS
- Each Fund will distribute substantially all of its income. THE INCOME
DIVIDENDS YOU RECEIVE FROM THE FUNDS WILL BE TAXED AS ORDINARY INCOME
WHETHER YOU RECEIVE THE DIVIDENDS IN CASH OR IN ADDITIONAL SHARES.
- Corporate shareholders may be entitled to a dividends-received deduction
for the portion of dividends they receive which are attributable to
dividends received by a Fund from U.S. corporations.
- Capital gains distributions will result from gains on the sale or exchange
of capital assets held for more than one year, and will be taxed at
different rates depending on how long the Fund held the assets.
- Distributions paid in January but declared by a Fund in October, November
or December of the previous year, may be taxable to you in the previous
year.
<PAGE>
- ------
40 PROSPECTUS
TAX STATUS OF SHARE TRANSACTIONS
EACH SALE, EXCHANGE, OR REDEMPTION OF FUND SHARES IS A TAXABLE EVENT TO YOU.
YOU SHOULD CONSIDER THE TAX CONSEQUENCES OF ANY REDEMPTION OR EXCHANGE BEFORE
MAKING SUCH A REQUEST, ESPECIALLY WITH RESPECT TO REDEMPTIONS, IF YOU INVEST IN
THE FUNDS THROUGH A TAX-QUALIFIED RETIREMENT PLAN.
STATE TAX CONSIDERATIONS
A Fund is not liable for any income or franchise tax in Delaware as long as
it qualifies as a regulated investment company for Federal income tax purposes.
Distributions by the Funds may be subject to state and local taxation. You
should verify your tax liability with your tax advisor.
<PAGE>
PROSPECTUS 41
--------
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
[ICON]
The financial highlights table is intended to help you understand the
Fund's financial performance for the period of the Fund's operations.
Certain information reflects financial results for a single Fund Advisor
Class Share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in an Advisor Class
Share of the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by
whose report, along with the financial statements and
related notes, appears in the Trust's 1999 Annual Report. Our 1999 Annual Report
is available by telephoning us at 1-800- . The Annual Report is
incorporated by reference in the SAI.
<PAGE>
Additional information about Advisor Class Shares of the Funds is included in a
Statement of Additional Information dated August 1, 1999 (the "SAI"), which
contains more detailed information about the Funds. The SAI has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated by reference
into this Prospectus and, therefore, legally forms a part of this Prospectus.
The SEC maintains a Web site ("http://www.sec.gov") that contains the SAI,
material incorporated by reference, and other information regarding registrants
that file electronically with the SEC. You may also review and copy documents at
the SEC Public Reference Room in Washington, D.C. (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment of
a duplication fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, D.C. 20549-6009. To help you to obtain additional
information, the Fund's SEC registration number is 811-7584.
You may obtain a copy of the SAI or the annual or semi-annual reports, without
charge by calling 1-800-820-0888 or by writing to Rydex Series Trust, at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852. Additional
information about the Funds' investments is available in the annual and semi-
annual reports. Also, in the Funds' annual report, you will find a discussion of
the market conditions and investment strategies that significantly affected the
Funds' performance during its last fiscal year.
- --------------------------------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH INFORMATION
OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR PADCO ADVISORS,
INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST IN ANY
JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RYDEX SERIES TRUST
6116 EXECUTIVE BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20852
301/468-8520
Rydex Variable Trust (the "Trust") is a no-load mutual fund complex with
twenty-two separate investment portfolios (the "Funds"). This Statement of
Additional Information ("SAI") relates to shares of the following portfolios:
NOVA FUND
URSA FUND
OTC FUND
ARKTOS FUND
PRECIOUS METALS FUND
U.S. GOVERNMENT BOND FUND
JUNO FUND
BANKING FUND
BASIC MATERIALS FUND
BIOTECHNOLOGY FUND
CONSUMER PRODUCTS FUND
ELECTRONICS FUND
ENERGY FUND
ENERGY SERVICES FUND
FINANCIAL SERVICES FUND
HEALTH CARE FUND
LEISURE FUND
RETAILING FUND
TECHNOLOGY FUND
TELECOMMUNICATIONS FUND
TRANSPORTATION FUND
U.S. GOVERNMENT MONEY MARKET FUND
This SAI is not a prospectus. It should be read in conjunction with the Trust's
Prospectus, dated August 1, 1999. A copy of the Trust's Prospectus is available,
without charge, upon request to the Trust at the address above or by telephoning
the Trust at the telephone number above.
The date of this SAI is August 1, 1999.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION ABOUT THE TRUST...............................................................................3
ADDITIONAL INFORMATION ABOUT THE SECTOR FUNDS.....................................................................3
DESCRIPTION OF THE MONEY MARKET FUND..............................................................................7
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS..................................................................7
INVESTMENT RESTRICTIONS..........................................................................................16
PORTFOLIO TRANSACTIONS AND BROKERAGE.............................................................................20
MANAGEMENT OF THE TRUST..........................................................................................21
PRINCIPAL HOLDERS OF SECURITIES..................................................................................27
DETERMINATION OF NET ASSET VALUE.................................................................................27
PERFORMANCE INFORMATION..........................................................................................29
CALCULATION OF RETURN QUOTATIONS.................................................................................30
INFORMATION ON COMPUTATION OF YIELD..............................................................................31
PURCHASE AND REDEMPTION OF SHARES................................................................................33
DIVIDENDS, DISTRIBUTIONS, AND TAXES..............................................................................34
OTHER INFORMATION................................................................................................37
COUNSEL..........................................................................................................38
AUDITORS AND CUSTODIAN...........................................................................................38
FINANCIAL STATEMENTS.............................................................................................38
APPENDIX........................................................................................................A-1
</TABLE>
2
<PAGE>
GENERAL INFORMATION ABOUT THE TRUST
The Trust was organized as a Delaware business trust on February 10, 1993. The
Trust is permitted to offer separate portfolios and different classes of shares.
The Trust currently offers two separate classes of shares, Investor Class Shares
and Advisor Class Shares. Investor Class Shares are sold principally to
professional money managers and to investors who take part in certain
asset-allocation investment strategies. Advisor Class Shares are offered through
broker-dealers and other financial institutions ("intermediaries") that have
entered into arrangements with the Trust's Distributor (the "Distributor") to
sell Advisor Class Shares to their customers. Advisor Class Shares differ from
Investor Class Shares primarily in the allocation of certain shareholder
servicing and distribution expenses and in the minimum initial investment
requirement. Sales of shares of each Class are made without a sales charge at
each Fund's per share net asset value. Additional Funds and/or classes may be
created from time to time.
Currently, the Trust has twenty-two separate series. All payments received by
the Trust for shares of any fund belong to that fund. Each fund has its own
assets and liabilities.
ADDITIONAL INFORMATION ABOUT THE SECTOR FUNDS
BANKING FUND
The Fund may invest in companies engaged in accepting deposits and making
commercial and principally non-mortgage consumer loans. In addition, these
companies may offer services such as merchant banking, consumer and commercial
finance, discount brokerage, leasing and insurance. These companies may
concentrate their operations within a specific part of the country rather than
operating predominantly on a national or international scale.
BASIC MATERIALS FUND
The Fund may invest in companies engaged in the manufacture, mining, processing,
or distribution of raw materials and intermediate goods used in the industrial
sector. The Fund may invest in companies handling products such as chemicals,
lumber, paper, copper, iron ore, nickel, steel, aluminum, textiles, cement, and
gypsum. The Fund may also invest in the securities of mining, processing,
transportation, and distribution companies, including equipment suppliers and
railroads.
BIOTECHNOLOGY FUND
The Fund may invest in companies engaged in the research, development, sale, and
manufacture of various biotechnological products, services and processes. These
include companies involved with developing or experimental technologies such as
generic engineering, hybridoma and recombinant DNA techniques and monoclonal
antibodies. The Fund may also invest in companies that manufacture and/or
distribute biotechnological and biomedical products, including devices and
instruments, and that provide or benefit significantly from scientific and
technological advances in biotechnology. Some biotechnology companies may
provide processes or services instead of, or in addition to, products.
The description of the biotechnology sector may be interpreted broadly to
include applications and developments in such areas as human health care
(cancer, infectious disease, diagnostics and therapeutics); pharmaceuticals (new
drug development and production); agricultural and veterinary applications
(improved seed varieties, animal growth hormones); chemicals (enzymes, toxic
waste treatment); medical/surgical (epidermal growth factor, in vivo
imaging/therapeutics); and industry (biochips, fermentation, enhanced mineral
recovery).
3
<PAGE>
CONSUMER PRODUCTS FUND
The Fund may invest in companies engaged in the manufacture of goods to
consumers, both domestically and internationally. The Fund may invest in
companies that manufacture durable products such as furniture, major appliances,
and personal computers. The Fund also may invest in companies that manufacture,
wholesale or retail non-durable goods such as beverages, tobacco, health care
products, household and personal care products, apparel, and entertainment
products (E.G., books, magazines, TV, cable, movies, music, gaming, and sports).
In addition, the Fund may invest in consumer products and services such as
lodging, child care, convenience stores, and car rentals.
ELECTRONICS FUND
The Fund may invest in companies engaged in the design, manufacture, or sale of
electronic components (semiconductors, connectors, printed circuit boards and
other components); equipment vendors to electronic component manufacturers;
electronic component distributors; and electronic instruments and electronic
systems vendors. In addition, the Fund may invest in companies in the fields of
defense electronics, medical electronics, consumer electronics, advanced
manufacturing technologies (computer-aided design and computer-aided
manufacturing electro-optics, and other developing electronics technologies.
ENERGY FUND
The Fund may invest in companies in the energy field, including the conventional
areas of oil, gas, electricity and coal, and alternative sources of energy such
as nuclear, geothermal, oil shale and solar power. The business activities of
companies in which the Fund may invest include production, generation,
transmission, refining, marketing, control, distribution or measurement of
energy or energy fuels such as petrochemicals; providing component parts or
services to companies engaged in the above activities; energy research or
experimentation; and environmental activities related to pollution control.
Companies participating in new activities resulting from technological advances
or research discoveries in the energy field may also be considered for this
Fund.
ENERGY SERVICES FUND
The Fund may invest in companies in the energy service field, including those
that provide services and equipment to the conventional areas of oil, gas,
electricity and coal, and alternative sources of energy such as nuclear,
geothermal, oil shale and solar power. The Fund may invest in companies involved
in providing services and equipment for drilling processes such as offshore and
onshore drilling, drill bits, drilling rig equipment, drilling string equipment,
drilling fluids, tool joints and wireline logging. Many energy service companies
are engaged in production and well maintenance, providing such products and
services as packers, perforating equipment, pressure pumping, downhole
equipment, valves, pumps, compression equipment, and well completion equipment
and service. Certain companies supply energy providers with exploration
technology such as seismic data, geological and geophysical services, and
interpretation of this data. The Fund may also invest in companies with a
variety of underwater well services, helicopter services, geothermal plant
design or construction, electric and nuclear plant design or construction,
energy related capital equipment, mining related equipment or services, and high
technology companies serving these industries.
FINANCIAL SERVICES FUND
The Fund may invest in companies that are involved in the financial sector,
including commercial and investment banks, savings and loan associations,
consumer and industrial finance companies, securities
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brokerage companies, real estate-related companies, leasing companies, and a
variety of firms in all segments of the insurance industry such as multi-line,
property and casualty, and life insurance.
The financial services sector is currently undergoing relatively rapid change as
existing distinctions between financial service segments become less clear. For
instance, recent business combinations have included insurance, finance, and
securities brokerage under single ownership. Some primarily retail corporations
have expanded into securities and insurance industries. Moreover, the federal
laws generally separating commercial and investment banking are currently being
studied by Congress.
Securities and Exchange Commission ("SEC") regulations provide that the Fund may
not invest more than 5% of its total assets in the securities of any one company
that derives more than 15% of its revenues from brokerage or investment
management activities. These companies, as well as those deriving more than 15%
of profits from brokerage and investment management activities, will be
considered to be "principally engaged" in this Fund's business activity. Rule
12d3-1 under the Investment Company Act of 1940 (the "1940 Act"), allows
investment portfolios such as this Fund, to invest in companies engaged in
securities-related activities subject to certain conditions. Purchases of
securities of a company that derived 15% or less of gross revenues during its
most recent fiscal year from securities-related activities (I.E., broker/dealer,
underwriting, or investment advisory activities) are subject only to the same
percentage limitations as would apply to any other security the Fund may
purchase. The Fund may purchase securities of an issuer that derived more than
15% of it gross revenues in its most recent fiscal year from securities-related
activities, subject to the following conditions:
a. the purchase cannot cause more than 5% of the Fund's total assets to be
invested in securities of that issuer;
b. for any equity security, the purchase cannot result in the Fund owning
more than 5% of the issuer's outstanding securities in that class;
c. for a debt security, the purchase cannot result in the fund owning more
than 10% of the outstanding principal amount of the issuer's debt
securities.
In applying the gross revenue test, an issuer's own securities-related
activities must be combined with its ratable share of securities-related
revenues from enterprises in which it owns a 20% or greater voting or equity
interest. All of the above percentage limitations, as well as the issuer's gross
revenue test, are applicable at the time of purchase. With respect to warrants,
rights, and convertible securities, a determination of compliance with the above
limitations shall be made as though such warrant, right, or conversion privilege
had been exercised. The Fund will not be required to divest its holding of a
particular issuer when circumstances subsequent to the purchase cause one of the
above conditions to not be met. The purchase of a general partnership interest
in a securities-related business is prohibited.
HEALTH CARE FUND
The Fund may invest in companies that are involved in the health care industry
including companies engaged in the design, manufacture, or sale of products or
services used for or in connection with health care or medicine. Companies in
the health care sector may include pharmaceutical companies; firms that design,
manufacture, sell, or supply medical, dental, and optical products, hardware or
services; companies involved in biotechnology, medical diagnostic, and
biochemical research and development, as well as companies involved in the
operation of health care facilities.
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LEISURE FUND
The Fund may invest in companies engaged in the design, production, or
distribution of goods or services in the leisure industries including television
and radio broadcasting or manufacturing (including cable television); motion
pictures and photography; recordings and musical instruments; publishing,
including newspapers and magazines; sporting goods and camping and recreational
equipment; and sports arenas. Other goods and services may include toys and
games (including video and other electronic games), amusement and theme parks,
travel and travel-related services, hotels and motels, leisure apparel or
footwear, tobacco products, and gaming casinos.
RETAILING FUND
The Fund may invest in companies that are involved in the retailing sector
including companies engaged in merchandising finished goods and services
primarily to individual consumers. Companies in which the Fund may invest
include general merchandise retailers, department stores, restaurant franchises,
drug stores, motor vehicle and marine dealers, and any specialty retailers
selling a single category of merchandise such as apparel, toys, jewelry,
consumer electronics, or home improvement products. The Fund may also invest in
companies engaged in selling goods and services through alternative means such
as direct telephone marketing, mail order, membership warehouse clubs, computer,
or video based electronic systems.
TECHNOLOGY FUND
The Fund may invest in companies that are involved in the technology sector
including companies which the Advisor believes have, or will develop, products,
processes or services that will provide or will benefit significantly from
technological advances and improvements. These may include, for example,
companies that develop, produce, or distribute products or services in the
computer, semiconductor, electronics, communications, health care, and
biotechnology sectors.
TELECOMMUNICATIONS FUND
The Fund may invest in companies that are involved in the telecommunications
sector including companies engaged in the development, manufacture, or sale of
communications services and/or equipment. Companies in the telecommunications
field offer a variety of services and products, including local and
long-distance telephone service; cellular, paging, local and wide-area product
networks; satellite, microwave and cable television; Internet access; and
equipment used to provide these products and services. Long-distance telephone
companies may also have interests in developing technologies, such as fiber
optics and data transmission. Certain types of companies in which the Fund may
invest are engaged in fierce competition for a share of the market for goods or
services such as private and local area networks, or are engaged in the sale of
telephone set equipment.
TRANSPORTATION FUND
The Fund may invest in companies that are involved in the transportation sector,
including companies engaged in providing transportation services or companies
engaged in the design, manufacture, distribution, or sale of transportation
equipment. Transportation services may include companies involved in the
movement of freight and/or people such as airline, railroad, ship, truck, and
bus companies. Other service companies include those that provide leasing and
maintenance for automobiles, trucks, containers, rail cars, and planes.
Equipment manufacturers include makers of trucks, automobiles, planes,
containers, rail cars, or any other mode of transportation and its related
products. In addition, the Fund may invest in companies that sell fuel-saving
devices to the transportation industries and those that sell insurance and
software developed primarily for transportation companies.
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DESCRIPTION OF THE MONEY MARKET FUND
The Money Market Fund seeks to provide security of principal, high current
income, and liquidity. The Money Market Fund invests primarily in money market
instruments issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and may invest any remaining
assets in receipts and enter into repurchase agreements fully collateralized by
U.S. Government Securities.
The Money Market Fund is governed by SEC rules which impose certain liquidity,
maturity and diversification requirements. The Money Market Fund's assets are
valued using the amortized cost method, which enables the Money Market Fund to
maintain a stable NAV. All securities purchased by the Money Market Fund must
have remaining maturities of 397 days or less. Although the Money Market Fund is
managed to maintain a stable price per share of $1.00, there is no guarantee
that the price will be constantly maintained.
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS
GENERAL
Each Fund's investment objective and permitted investments are described in the
Prospectuses. The following information supplements, and should be read in
conjunction with, those sections of the Prospectuses.
Portfolio management is provided to each Fund by the Trust's investment adviser,
PADCO Advisors, Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852 (the "Advisor"). The investment
strategies of the Funds discussed below and in the Prospectuses may be used by a
Fund if, in the opinion of the Advisor, these strategies will be advantageous to
that Fund. A Fund is free to reduce or eliminate its activity in any of those
areas without changing the Fund's fundamental investment policies. There is no
assurance that any of these strategies or any other strategies and methods of
investment available to a Fund will result in the achievement of that Fund's
objectives.
BORROWING
The Nova Fund, the Bond Fund and the Sector Funds may borrow money, including
borrowing for investment purposes. Borrowing for investment is known as
leveraging. Leveraging investments, by purchasing securities with borrowed
money, is a speculative technique which increases investment risk, but also
increases investment opportunity. Since substantially all of a Fund's assets
will fluctuate in value, whereas the interest obligations on borrowings may be
fixed, the net asset value per share of the Fund will increase more when the
Fund's portfolio assets increase in value and decrease more when the Fund's
portfolio assets decrease in value than would otherwise be the case. Moreover,
interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the returns on the borrowed funds.
Under adverse conditions, the Nova Fund, the Bond Fund, or the Sector Funds
might have to sell portfolio securities to meet interest or principal payments
at a time investment considerations would not favor such sales. The Nova Fund,
the Bond Fund and the Sector Funds intend to use leverage during periods when
the Advisor believes that the respective Fund's investment objective would be
furthered.
Each Fund may borrow money to facilitate management of the Fund's portfolio by
enabling the Fund to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous. Such borrowing is not for
investment purposes and will be repaid by the borrowing Fund promptly.
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As required by the 1940 Act, a Fund must maintain continuous asset coverage
(total assets, including assets acquired with borrowed funds, less liabilities
exclusive of borrowings) of 300% of all amounts borrowed. If, at any time, the
value of the Fund's assets should fail to meet this 300% coverage test, the
Fund, within three days (not including Sundays and holidays), will reduce the
amount of the Fund's borrowings to the extent necessary to meet this 300%
coverage. Maintenance of this percentage limitation may result in the sale of
portfolio securities at a time when investment considerations otherwise indicate
that it would be disadvantageous to do so.
In addition to the foregoing, the Funds are authorized to borrow money from a
bank as a temporary measure for extraordinary or emergency purposes in amounts
not in excess of 5% of the value of the Fund's total assets. This borrowing is
not subject to the foregoing 300% asset coverage requirement The Funds are
authorized to pledge portfolio securities as the Advisor deems appropriate in
connection with any borrowings.
FOREIGN ISSUERS
The Metals Fund and the Sector Funds may invest in issuers located outside the
United States. The Metals Fund and the Sector Funds may purchase American
Depositary Receipts ("ADRs"), "ordinary shares," or "New York shares" in the
United States. ADRs are dollar-denominated receipts representing interests in
the securities of a foreign issuer, which securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by United States banks and trust
companies which evidence ownership of underlying securities issued by a foreign
corporation. Generally, ADRs in registered form are designed for use in domestic
securities markets and are traded on exchanges or over-the-counter in the United
States. Ordinary shares are shares of foreign issuers that are traded abroad and
on a United States exchange. New York shares are shares that a foreign issuer
has allocated for trading in the United States. ADRs, ordinary shares, and New
York shares all may be purchased with and sold for U.S. dollars, which protect
the Funds from the foreign settlement risks described below.
Investing in foreign companies may involve risks not typically associated with
investing in United States companies. The value of securities denominated in
foreign currencies, and of dividends from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less trading volume and less
liquidity than United States markets, and prices in some foreign markets can be
very volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those that apply to United States companies, and it may
be more difficult to obtain reliable information regarding a foreign issuer's
financial condition and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions, and custodial fees,
generally are higher than for United States investments.
Investing in companies located abroad carries political and economic risks
distinct from those associated with investing in the United States. Foreign
investment may be affected by actions of foreign governments adverse to the
interests of United States investors, including the possibility of expropriation
or nationalization of assets, confiscatory taxation, restrictions on United
States investment, or on the ability to repatriate assets or to convert currency
into U.S. dollars. There may be a greater possibility of default by foreign
governments or foreign-government sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
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With regard to the Metals Fund, at the present time, five countries are the
major producers and processors of gold bullion and other precious metals and
minerals. In order of magnitude, these producers and processors are: the
Republic of South Africa, the former republics of the former Soviet Union,
Canada, the United States, and Australia. Political and economic conditions in
South Africa and the former republics of the former Soviet Union may have a
direct effect on the mining, distribution, and price of precious metals and
minerals, and on the sales of central bank gold holdings. South African mining
stocks represent a special risk in view of the history of political unrest in
that country. Besides that factor, various government bodies such as the South
African Ministry of Mines and the Reserve Bank of South Africa exercise
regulatory authority over mining activity and the sale of gold. The policies of
these South African government bodies in the future could be detrimental to the
Metals Fund's ability to achieve its objectives.
ILLIQUID SECURITIES
While none of the Funds anticipates doing so, each Fund may purchase illiquid
securities, including securities that are not readily marketable and securities
that are not registered ("restricted securities") under the Securities Act of
1933, as amended (the "1933 Act"), but which can be offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act. A Fund will
not invest more than 15% (10% with respect to the Money Market Fund) of the
Fund's net assets in illiquid securities. Each Fund will adhere to a more
restrictive limitation on the Fund's investment in illiquid securities as
required by the securities laws of those jurisdictions where shares of the Fund
are registered for sale. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities. Under the current guidelines of the staff of the Securities and
Exchange Commission (the "Commission"), illiquid securities also are considered
to include, among other securities, purchased over-the-counter options, certain
cover for over-the-counter options, repurchase agreements with maturities in
excess of seven days, and certain securities whose disposition is restricted
under the Federal securities laws. The Fund may not be able to sell illiquid
securities when the Advisor considers it desirable to do so or may have to sell
such securities at a price that is lower than the price that could be obtained
if the securities were more liquid. In addition, the sale of illiquid securities
also may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
Institutional markets for restricted securities have developed as a result of
the promulgation of Rule 144A under the 1933 Act, which provides a "safe harbor"
from 1933 Act registration requirements for qualifying sales to institutional
investors. When Rule 144A restricted securities present an attractive investment
opportunity and meet other selection criteria, a Fund may make such investments
whether or not such securities are "illiquid" depends on the market that exists
for the particular security. The trustees of the Trust (the "Trustees") have
delegated the responsibility for determining the liquidity of Rule 144A
restricted securities which may be invested in by a Fund to the Advisor.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Funds (other than the Bond Fund, the Money Market Fund, and the Sector
Funds) presently may invest in the securities of other investment companies to
the extent that such an investment would be consistent with the requirements of
Section 12(d)(1) of the 1940 Act. A Fund, therefore, may invest in the
securities of another investment company (the "acquired company") provided that
the Fund, immediately after such purchase or acquisition, does not own in the
aggregate: (i) more than 3% of the total outstanding voting stock of the
acquired company; (ii) securities issued by the acquired company having an
aggregate value in
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excess of 5% of the value of the total assets of the Fund; or (iii) securities
issued by the acquired company and all other investment companies (other than
Treasury stock of the Fund) having an aggregate value in excess of 10% of the
value of the total assets of the Fund. The Bond Fund, the Money Market Fund and
the Sector Funds may invest in the securities of other investment companies only
as part of a merger, reorganization, or acquisition, subject to the requirements
of the 1940 Act.
If a Fund invests in, and, thus, is a shareholder of, another investment
company, the Fund's shareholders will indirectly bear the Fund's proportionate
share of the fees and expenses paid by such other investment company, including
advisory fees, in addition to both the management fees payable directly by the
Fund to the Fund's own investment adviser and the other expenses that the Fund
bears directly in connection with the Fund's own operations.
LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, each of the Funds may
lend portfolio securities to brokers, dealers, and financial institutions,
provided that cash equal to at least 100% of the market value of the securities
loaned is deposited by the borrower with the Fund and is maintained each
business day in a segregated account pursuant to applicable regulations. While
such securities are on loan, the borrower will pay the lending Fund any income
accruing thereon, and the Fund may invest the cash collateral in portfolio
securities, thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which the Fund's shares are qualified for sale, and the Funds
will not lend more than 33 1/3% of the value of the Fund's total assets, except
that the Money Market Fund will not lend more than 10% of the value of the Money
Market Fund's total assets. Loans would be subject to termination by the lending
Fund on four business days' notice, or by the borrower on one day's notice.
Borrowed securities must be returned when the loan is terminated. Any gain or
loss in the market price of the borrowed securities which occurs during the term
of the loan inures to the lending Fund and that Fund's shareholders. A lending
Fund may pay reasonable finders, borrowers, administrative, and custodial fees
in connection with a loan.
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. The Nova Fund, the OTC Fund, the Metals Fund and the
Sector Funds may buy call options and write (sell) put options on securities,
and the Ursa Fund and the Arktos Fund may buy put options and write call options
on securities for the purpose of realizing the Fund's investment objective. By
writing a call option on securities, a Fund becomes obligated during the term of
the option to sell the securities underlying the option at the exercise price if
the option is exercised. By writing a put option, a Fund becomes obligated
during the term of the option to purchase the securities underlying the option
at the exercise price if the option is exercised.
During the term of the option, the writer may be assigned an exercise notice by
the broker-dealer through whom the option was sold. The exercise notice would
require the writer to deliver, in the case of a call, or take delivery of, in
the case of a put, the underlying security against payment of the exercise
price. This obligation terminates upon expiration of the option, or at such
earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date as the one previously sold. Once an option
has been exercised, the writer may not execute a closing purchase transaction.
To secure the obligation to deliver the underlying security in the case of a
call option, the writer of a call option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Option
Clearing Corporation (the "OCC"), an institution
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created to interpose itself between buyers and sellers of options. The OCC
assumes the other side of every purchase and sale transaction on an exchange
and, by doing so, gives its guarantee to the transaction.
OPTIONS ON SECURITY INDEXES. The Nova Fund, the OTC Fund, the Metals Fund and
the Sector Funds may purchase call options and write put options, and the Ursa
Fund and the Arktos Fund may purchase put options and write call options, on
stock indexes listed on national securities exchanges or traded in the
over-the-counter market as an investment vehicle for the purpose of realizing
the Fund's investment objective.
Options on indexes are settled in cash, not in delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference between the closing price of the securities index and the
exercise price of the option. When a Fund writes a covered option on an index,
the Fund will be required to deposit and maintain with a custodian cash or
liquid securities equal in value to the aggregate exercise price of a put or
call option pursuant to the requirements and the rules of the applicable
exchange. If, at the close of business on any day, the market value of the
deposited securities falls below the contract price, the Fund will deposit with
the custodian cash or liquid securities equal in value to the deficiency.
OPTIONS ON FUTURES CONTRACTS. Under Commodities Futures Trading Commission
("CFTC") Regulations, a Fund (other than the Money Market Fund) may engage in
futures transactions, either for "bona fide hedging" purposes, as this term is
defined in the CFTC Regulations, or for non-hedging purposes to the extent that
the aggregate initial margins and option premiums required to establish such
non-hedging positions do not exceed 5% of the liquidation value of the Fund's
portfolio. In the case of an option on futures contracts that is "in-the-money"
at the time of purchase (I.E., the amount by which the exercise price of the put
option exceeds the current market value of the underlying security, or the
amount by which the current market value of the underlying security exceeds the
exercise price of the call option), the in-the-money amount may be excluded in
calculating this 5% limitation.
When a Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, a Fund
may maintain with its custodian bank (and marked-to-market on a daily basis), a
segregated account consisting of cash or liquid securities that, when added to
any amounts deposited with a futures commission merchant as margin, are equal to
the market value of the futures contract or otherwise "cover" its position. If
the Fund continues to engage in the described securities trading practices and
properly segregates assets, the segregated account will function as a practical
limit on the amount of leverage which the Fund may undertake and on the
potential increase in the speculative character of the Fund's outstanding
portfolio securities. Additionally, such segregated accounts will generally
assure the availability of adequate funds to meet the obligations of the Fund
arising from such investment activities.
A Fund may cover its long position in a futures contract by purchasing a put
option on the same futures contract with a strike price (I.E., an exercise
price) as high or higher than the price of the futures contract. In the
alternative, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments with prices which
are expected to move relatively consistently with the futures contract. A Fund
may cover its short position in a futures contract by taking a long position in
the instruments underlying the futures contracts, or by taking positions in
instruments with prices which are expected to move relatively consistently with
the futures contract.
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A Fund may cover its sale of a call option on a futures contract by taking a
long position in the underlying futures contract at a price less than or equal
to the strike price of the call option. In the alternative, if the long position
in the underlying futures contracts is established at a price greater than the
strike price of the written (sold) call, the Fund will maintain in a segregated
account cash or liquid securities equal in value to the difference between the
strike price of the call and the price of the futures contract. A Fund may also
cover its sale of a call option by taking positions in instruments with prices
which are expected to move relatively consistently with the call option. A Fund
may cover its sale of a put option on a futures contract by taking a short
position in the underlying futures contract at a price greater than or equal to
the strike price of the put option, or, if the short position in the underlying
futures contract is established at a price less than the strike price of the
written put, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its sale of a put
option by taking positions in instruments with prices which are expected to move
relatively consistently with the put option.
PORTFOLIO TURNOVER
As discussed in the Trust's prospectus, the Trust anticipates that investors in
the Funds, as part of an asset allocation investment strategy, will frequently
purchase and/or redeem shares of the Funds . The nature of the Funds as asset
allocation tools will cause the Funds to experience substantial portfolio
turnover. (See "More Information About Risk" in the Trust's Prospectus). Because
each Fund's portfolio turnover rate to a great extent will depend on the
purchase, redemption, and exchange activity of the Fund's investors, it is very
difficult to estimate what the Fund's actual turnover rate will be in the
future. However, the Trust expects that the portfolio turnover experienced by
the Funds will be substantial.
REPURCHASE AGREEMENTS
As discussed in the Trust's Prospectus, each of the Funds may enter into
repurchase agreements with financial institutions. The Funds each follow certain
procedures designed to minimize the risks inherent in such agreements. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions whose condition
will be continually monitored by the Advisor. In addition, the value of the
collateral underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, a Fund will seek to liquidate such collateral. However, the
exercising of each Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. It is the current policy of each of the Funds, other
than the Money Market Fund, not to invest in repurchase agreements that do not
mature within seven days if any such investment, together with any other
illiquid assets held by the Fund, amounts to more than 15% (10% with respect to
the Money Market Fund) of the Fund's total assets. The investments of each of
the Funds in repurchase agreements, at times, may be substantial when, in the
view of the Advisor, liquidity or other considerations so warrant.
REVERSE REPURCHASE AGREEMENTS
The Ursa Fund, the Juno Fund, and the Money Market Fund may use reverse
repurchase agreements as part of that Fund's investment strategy. Reverse
repurchase agreements involve sales by a Fund of portfolio assets concurrently
with an agreement by the Fund to repurchase the same assets at a later date at a
fixed price. Generally, the effect of such a transaction is that the Fund can
recover all or most of the cash invested in the portfolio securities involved
during the term of the reverse repurchase agreement, while the Fund will be able
to keep the interest income associated with those portfolio securities. Such
transactions are
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advantageous only if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise. Opportunities
to achieve this advantage may not always be available, and the Funds intend to
use the reverse repurchase technique only when this will be to the Fund's
advantage to do so. Each Fund will establish a segregated account with the
Trust's custodian bank in which the Fund will maintain cash or cash equivalents
or other portfolio securities equal in value to the Fund's obligations in
respect of reverse repurchase agreements.
SHORT SALES
The Ursa Fund, the Arktos Fund, and the Juno Fund also may engage in short sales
transactions under which the Fund sells a security it does not own. To complete
such a transaction, the Fund must borrow the security to make delivery to the
buyer. The fund then is obligated to replace the security borrowed by purchasing
the security at the market price at the time of replacement. The price at such
time may be more or less than the price at which the security was sold by the
Fund. Until the security is replaced, the Fund is required to pay to the lender
amounts equal to any dividends or interest which accrue during the period of the
loan. To borrow the security, the Fund also may be required to pay a premium,
which would increase the cost of the security sold. The proceeds of the short
sale will be retained by the broker, to the extent necessary to meet the margin
requirements, until the short position is closed out.
Until the Ursa Fund, Arktos Fund, or Juno Fund closes its short position or
replaces the borrowed security, the Fund will: (a) maintain a segregated account
containing cash or liquid securities at such a level that (i) the amount
deposited in the account plus the amount deposited with the broker as collateral
will equal the current value of the security sold short and (ii) the amount
deposited in the segregated account plus the amount deposited with the broker as
collateral will not be less than the market value of the security at the time
the security was sold short; or (b) otherwise cover the Fund's short position.
Each of the Funds may sell up to 100% of its portfolio short.
The Nova Fund, the OTC Fund, the Metals Fund and the Sector Funds each may
engage in short sales if, at the time of the short sale, the Fund owns or has
the right to acquire an equal amount of the security being sold at no additional
cost. These Funds may make a short sale when the Fund wants to sell the security
the Fund owns at a current attractive price, in order to hedge or limit the
exposure of the Fund's position.
STOCK INDEX FUTURES CONTRACTS
A Fund may buy and sell stock index futures contracts with respect to any stock
index traded on a recognized stock exchange or board of trade. A stock index
futures contract is a contract to buy or sell units of an index at a specified
future date at a price agreed upon when the contract is made. The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract.
At the time a Fund purchases a futures contract, an amount of cash, U.S.
Government securities or other liquid securities equal to the market value of
the futures contract will be deposited in a segregated account with the Fund's
custodian. When writing a futures contract, the Fund will maintain with its
custodian liquid assets that, when added to the amounts deposited with a futures
commission merchant or broker as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, a Fund may "cover" its
position by owning the instruments underlying the contract (or, in the case of
an index futures contract, a portfolio with a volatility substantially similar
to that of the index on which the futures contract is based), or holding a call
option permitting the Fund to purchase the same futures contract at a price no
higher than
13
<PAGE>
the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
TRACKING ERROR
Funds which seek to duplicate the performance of their respective benchmarks, as
discussed in the Prospectus, do not expect that the returns over a year will
deviate adversely from their respective benchmarks by more than ten percent,
several factors may affect their ability to achieve this correlation. Among
these are: (1) Fund expenses, including brokerage (which may be increased by
high portfolio turnover); (2) less than all of the securities in the benchmark
being held by a Fund and securities not included in the benchmark being held by
a Fund; (3) an imperfect correlation between the performance of instruments held
by a Fund, such as futures contracts and options, and the performance of the
underlying securities in the market; (4) bid-ask spreads (the effect of which
may be increased by portfolio turnover); (5) a Fund holds instruments traded in
a market that has become illiquid or disrupted; (6) Fund share prices being
rounded to the nearest cent; (7) changes to the benchmark index that are not
disseminated in advance; (8) the need to conform a Fund's portfolio holdings to
comply with investment restrictions or policies or regulatory or tax law
requirements; or (9) market movements that run counter to a leveraged Fund's
investments (which will cause divergence between the Fund and its benchmark over
time due to the mathematical effects of leveraging). Market movements that run
counter to a leveraged Fund's investments will cause some divergence between the
Fund and its benchmark over time due to the mathematical effects of leveraging.
The magnitude of the divergence is dependent upon the magnitude of the market
movement, its duration, and the degree to which the Fund is leveraged. The
tracking error of a leveraged Fund is generally small during a well-defined
uptrend or downtrend in the market when measured from price peak to price peak,
access a market decline and subsequent recovery, however, the deviation of the
Fund from its benchmark may be significant.
U.S. GOVERNMENT SECURITIES
The Bond Fund invests primarily in U.S. Government Securities, and each of the
other Funds also may invest in U.S. Government Securities. The Juno Fund may
enter into short transactions on U.S. Government Securities. Securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities
include U.S. Treasury securities, which are backed by the full faith and credit
of the U.S. Treasury and which differ only in their interest rates, maturities,
and times of issuance. U.S. Treasury bills have initial maturities of one year
or less; U.S. Treasury notes have initial maturities of one to ten years; and
U.S. Treasury bonds generally have initial maturities of greater than ten years.
Certain U.S. Government Securities are issued or guaranteed by agencies or
instrumentalities of the U.S. Government including, but not limited to,
obligations of U.S. Government agencies or instrumentalities such as Fannie Mae,
the Government National Mortgage Association, the Small Business Administration,
the Federal Farm Credit Administration, the Federal Home Loan Banks, Banks for
Cooperatives (including the Central Bank for Cooperatives), the Federal Land
Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority,
the Export-Import Bank of the United States, the Commodity Credit Corporation,
the Federal Financing Bank, the Student Loan Marketing Association, and the
National Credit Union Administration.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury. Other obligations issued by or guaranteed by
Federal agencies, such as those securities issued by Fannie Mae, are supported
by the discretionary authority of the U.S. Government to purchase certain
obligations of the Federal agency, while other obligations issued by or
guaranteed by Federal agencies, such as those of the Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the U.S. Treasury, while
the U.S. Government provides financial support to such
14
<PAGE>
U.S. Government-sponsored Federal agencies, no assurance can be given that the
U.S. Government will always do so, since the U.S. Government is not so obligated
by law. U.S. Treasury notes and bonds typically pay coupon interest
semi-annually and repay the principal at maturity. The Bond Fund will invest in
such U.S. Government Securities only when the Advisor is satisfied that the
credit risk with respect to the issuer is minimal.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Fund, from time to time, in the ordinary course of business, may purchase
securities on a when-issued or delayed-delivery basis (I.E., delivery and
payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no interest
accrues to the purchaser during this period. At the time a Fund makes the
commitment to purchase securities on a when-issued or delayed-delivery basis,
the Fund will record the transaction and thereafter reflect the value of the
securities, each day, of such security in determining the Fund's net asset
value. A Fund will not purchase securities on a when-issued or delayed-delivery
basis if, as a result, more than 15% (10% with respect to the Money Market Fund)
of the Fund's net assets would be so invested. At the time of delivery of the
securities, the value of the securities may be more or less than the purchase
price. The Fund will also establish a segregated account with the Fund's
custodian bank in which the Fund will maintain cash or liquid securities equal
to or greater in value than the Fund's purchase commitments for such when-issued
or delayed-delivery securities. The Trust does not believe that a Fund's net
asset value or income will be adversely affected by the Fund's purchase of
securities on a when-issued or delayed-delivery basis.
ZERO COUPON BONDS
The Bond Fund and the Juno Fund may invest in U.S. Treasury zero-coupon bonds.
These securities are U.S. Treasury bonds which have been stripped of their
unmatured interest coupons, the coupons themselves, and receipts or certificates
representing interests in such stripped debt obligations and coupons. Interest
is not paid in cash during the term of these securities, but is accrued and paid
at maturity. Such obligations have greater price volatility than coupon
obligations and other normal interest-paying securities, and the value of zero
coupon securities reacts more quickly to changes in interest rates than do
coupon bonds. Since dividend income is accrued throughout the term of the zero
coupon obligation, but is not actually received until maturity, the Fund may
have to sell other securities to pay said accrued dividends prior to maturity of
the zero coupon obligation. Unlike regular U.S. Treasury bonds which pay
semi-annual interest, U.S. Treasury zero coupon bonds do not generate
semi-annual coupon payments. Instead, zero coupon bonds are purchased at a
substantial discount from the maturity value of such securities, the discount
reflecting the current value of the deferred interest; this discount is
amortized as interest income over the life of the security, and is taxable even
though there is no cash return until maturity. Zero coupon U.S. Treasury issues
originally were created by government bond dealers who bought U.S. Treasury
bonds and issued receipts representing an ownership interest in the interest
coupons or in the principal portion of the bonds. Subsequently, the U.S.
Treasury began directly issuing zero coupon bonds with the introduction of
"Separate Trading of Registered Interest and Principal of Securities" (or
"STRIPS"). While zero coupon bonds eliminate the reinvestment risk of regular
coupon issues, that is, the risk of subsequently investing the periodic interest
payments at a lower rate than that of the security held, zero coupon bonds
fluctuate much more sharply than regular coupon-bearing bonds. Thus, when
interest rates rise, the value of zero coupon bonds will decrease to a greater
extent than will the value of regular bonds having the same interest rate.
15
<PAGE>
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectuses)
are fundamental policies of the Funds which cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of that Fund are present or represented by proxy, or
(ii) more than 50% of that Fund's outstanding shares, whichever is less.
A Fund shall not:
1. Lend any security or make any other loan if, as a result, more
than 33 1/3% of the value of the Fund's total assets would be
lent to other parties, except (i) through the purchase of a
portion of an issue of debt securities in accordance with the
Fund's investment objective, policies, and limitations, or
(ii) by engaging in repurchase agreements with respect to
portfolio securities, or (iii) through the loans of portfolio
securities provided the borrower maintains collateral equal to
at least 100% of the value of the borrowed security and
marked-to-market daily.
2. Underwrite securities of any other issuer.
3. Purchase, hold, or deal in real estate or oil and gas interests,
although the Fund may purchase and sell securities that are
secured by real estate or interests therein and may purchase
mortgage-related securities and may hold and sell real estate
acquired for the Fund as a result of the ownership of securities.
4. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act) (including the amount of senior securities
issued but excluding liabilities and indebtedness not
constituting senior securities), except that the Fund may issue
senior securities in connection with transactions in options,
futures, options on futures, and other similar investments, and
except as otherwise permitted herein and in Investment
Restriction Nos. 5, 7, 8, and 9, as applicable to the Fund.
5. Pledge, mortgage, or hypothecate the Fund's assets, except to the
extent necessary to secure permitted borrowings and to the extent
related to the deposit of assets in escrow in connection with
(i) the writing of covered put and call options, (ii) the
purchase of securities on a forward-commitment or delayed-
delivery basis, and iii) collateral and initial or variation
margin arrangements with respect to currency transactions,
options, futures contracts, including those relating to indexes,
and options on futures contracts or indexes.
6. Invest in commodities except that the Fund may purchase and sell
futures contracts, including those relating to securities,
currencies, indexes, and options on futures contracts or indexes
and currencies underlying or related to any such futures
contracts, and purchase and sell currencies (and options thereon)
or securities on a forward-commitment or delayed-delivery basis.
16
<PAGE>
6.1 THE METALS FUND MAY (a) TRADE IN FUTURES CONTRACTS AND
OPTIONS ON FUTURES CONTRACTS; OR (b) INVEST IN
PRECIOUS-METALS AND PRECIOUS MINERALS.
7. Invest 25% or more of the value of the Fund's total assets in the
securities of one or more issuers conducting their principal
business activities in the same industry. This limitation does
not apply to investments or obligations of the U.S. Government or
any of its agencies or instrumentalities.
7.1 THE METALS FUND WILL INVEST 25% OR MORE OF THE VALUE OF THE
ITS TOTAL ASSETS IN THE SECURITIES IN THE METALS-RELATED AND
MINERALS-RELATED INDUSTRIES.
8. Borrow money, except (i) as a temporary measure for extraordinary
or emergency purposes and then only in amounts not in excess of
5% of the value of the Fund's total assets from a bank or (ii) in
an amount up to one-third of the value of the Fund's total
assets, including the amount borrowed, in order to meet
redemption requests without immediately selling portfolio
instruments. This provision is not for investment leverage but
solely to facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous.
8.1 THE NOVA FUND AND THE BOND FUND MAY BORROW MONEY, SUBJECT TO
THE CONDITIONS OF PARAGRAPH 8, FOR THE PURPOSE OF INVESTMENT
LEVERAGE.
8.2 THE JUNO FUND MAY BORROW MONEY, SUBJECT TO THE CONDITIONS OF
PARAGRAPH 8, BUT SHALL NOT MAKE PURCHASES WHILE BORROWING IN
EXCESS OF 5% OF THE VALUE OF ITS ASSETS. FOR PURPOSES OF
THIS SUBPARAGRAPH, FUND ASSETS INVESTED IN REVERSE
REPURCHASE AGREEMENTS ARE INCLUDED IN THE AMOUNTS BORROWED.
9. Make short sales of portfolio securities or purchase any
portfolio securities on margin, except for such short-term
credits as are necessary for the clearance of transactions. The
deposit or payment by the Fund of initial or variation margin in
connection with futures or options transactions is not considered
to be a securities purchase on margin. The Fund may engage in
short sales if, at the time of the short sale, the Fund owns or
has the right to acquire an equal amount of the security being
sold at no additional cost ("selling against the box").
9.1 THE URSA FUND, THE ARKTOS FUND, AND THE JUNO FUND MAY ENGAGE
IN SHORT SALES OF PORTFOLIO SECURITIES OR MAINTAIN A SHORT
POSITION IF AT ALL TIMES WHEN A SHORT POSITION IS OPEN (i)
THE FUND MAINTAINS A SEGREGATED ACCOUNT WITH THE FUND'S
CUSTODIAN TO COVER THE SHORT POSITION IN ACCORDANCE WITH THE
POSITION OF THE SECURITIES AND EXCHANGE COMMISSION OR (ii)
THE FUND OWNS AN EQUAL AMOUNT OF SUCH SECURITIES OR
SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE, WITHOUT PAYMENT
OF ANY FURTHER CONSIDERATION, FOR SECURITIES OF THE SAME
ISSUE AS, AND EQUAL IN AMOUNT TO, THE SECURITIES SOLD SHORT.
17
<PAGE>
FUNDAMENTAL POLICIES APPLICABLE TO THE MONEY MARKET FUND
The Money Market Fund shall not:
10. Make loans to others except through the purchase of qualified
debt obligations, loans of portfolio securities and entry into
repurchase agreements.
11. Lend the Money Market Fund's portfolio securities in excess of
15% of the Money Market Fund's total assets. Any loans of the
Money Market Fund's portfolio securities will be made according
to guidelines established by the Board of Trustees of the Trust,
including maintenance of cash collateral of the borrower equal at
all times to the current market value of the securities loaned.
12. Issue senior securities, except as permitted by the Money Market
Fund's investment objectives and policies.
13. Write or purchase put or call options.
14. Invest in securities of other investment companies, except as
these securities may be acquired as part of a merger,
consolidation, acquisition of assets, or plan of reorganization.
15. Mortgage, pledge, or hypothecate the Money Market Fund's assets
except to secure permitted borrowings. In those cases, the Money
Market Fund may mortgage, pledge, or hypothecate assets having a
market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets of the Money Market
Fund at the time of the borrowing.
16. Make short sales of portfolio securities or purchase any
portfolio securities on margin, except for such short-term
credits as are necessary for the clearance of transactions.
FUNDAMENTAL POLICIES OF THE SECTOR FUNDS
A Sector Fund may not:
17. Borrow money in an amount exceeding 33 1/3% of the value of its
total assets, provided that, for purposes of this limitation,
investment strategies which either obligate the Fund to purchase
securities or require that Fund to segregate assets are not
considered to be borrowing. Asset coverage of a least 300% is
required for all borrowing, except where the Fund has borrowed
money for temporary purposes in amounts not exceeding 5% of its
total assets. The Fund will not purchase securities while its
borrowing exceeds 5% of its total assets.
18. Make loans if, as a result, more than 33 1/3% of its total assets
would be lent to other parties, except that the Fund may (i)
purchase or hold debt instruments in accordance with its
investment objective and policies; (ii) enter into repurchase
agreements; and (iii) lend its securities.
18
<PAGE>
19. Purchase or sell real estate, physical commodities, or
commodities contracts, except that the Fund may purchase (i)
marketable securities issued by companies which own or invest in
real estate (including real estate investment trusts),
commodities, or commodities contracts; and (ii) commodities
contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.
20. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC.
21. Act as an underwriter of securities of other issuers except as it
may be deemed an underwriter in selling a portfolio security.
22. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Funds
and may be changed with respect to any Fund by the Board of Trustees.
Each Fund may not:
1. Invest in warrants.
2. Invest in real estate limited partnerships.
3. Invest in mineral leases.
Each Sector Fund may not:
4. Pledge, mortgage or hypothecate assets except to secure borrowing
permitted by the Fund's fundamental limitation on borrowing.
5. Invest in companies for the purpose of exercising control.
6. Purchase securities on margin or effect short sales, except that
a Fund may (i) obtain short-term credits as necessary for the
clearance of security transactions; (ii) provide initial and
variation margin payments in connection with transactions
involving futures contracts and options on such contracts; and
(iii) make short sales "against the box" or in compliance with
the SEC's position regarding the asset segregation requirements
imposed by Section 18 of the 1940 Act.
7. Invest its assets in securities of any investment company, except
as permitted by the 1940 Act or any rule, regulation or order of
the SEC.
8. Purchase or hold illiquid securities, I.E., securities that
cannot be disposed of for their approximate carrying value in
seven days or less (which term includes repurchase
19
<PAGE>
agreements and time deposits maturing in more than seven days)
if, in the aggregate, more than 15% of its net assets would be
invested in illiquid securities.
The foregoing percentages are: (i) based on total assets (except for the
limitation on illiquid securities, which is based on net assets); (ii) will
apply at the time of the purchase of a security; and (iii) shall not be
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of a purchase of such security.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the Funds, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. The Advisor expects that the Funds may execute brokerage or
other agency transactions through registered broker-dealers, for a commission,
in conformity with the 1940 Act, the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
The Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the Funds and others whose assets
the Advisor manages in such manner as the Advisor deems equitable. The main
factors considered by the Advisor in making such allocations among the Funds and
other client accounts of the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the person(s) responsible, if any, for
managing the portfolios of the Funds and the other client accounts.
The policy of each Fund regarding purchases and sales of securities for the
Fund's portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, each
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. Each Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Advisor from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisor relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
Purchases and sales of U.S. Government securities are normally transacted
through issuers, underwriters or major dealers in U.S. Government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.
In seeking to implement a Fund's policies, the Advisor effects transactions with
those brokers and dealers who the Advisor believes provide the most favorable
prices and are capable of providing efficient executions. If the Advisor
believes such prices and executions are obtainable from more than one broker or
dealer, the
20
<PAGE>
Advisor may give consideration to placing portfolio transactions with those
brokers and dealers who also furnish research and other services to the Fund or
the Advisor. Such services may include, but are not limited to, any one or more
of the following: information as to the availability of securities for purchase
or sale; statistical or factual information or opinions pertaining to
investment; wire services; and appraisals or evaluations of portfolio
securities. If the broker-dealer providing these additional services is acting
as a principal for its own account, no commissions would be payable. If the
broker-dealer is not a principal, a higher commission may be justified, at the
determination of the Advisor, for the additional services.
The information and services received by the Advisor from brokers and dealers
may be of benefit to the Advisor in the management of accounts of some of the
Advisor's other clients and may not in all cases benefit a Fund directly. while
the receipt of such information and services is useful in varying degrees and
would generally reduce the amount of research or services otherwise performed by
the Advisor and thereby reduce the Advisor's expenses, this information and
these services are of indeterminable value and the management fee paid to the
Advisor is not reduced by any amount that may be attributable to the value of
such information and services.
For the fiscal periods ended March 31, 1997, March 31, 1998 and March 31, 1999
the Funds paid the following brokerage commissions:
<TABLE>
<CAPTION>
AGGREGATE BROKERAGE COMMISSIONS
---------------------------------------------------------------------
FUND 1997* 1998 1999
- -------------------------------------------------- --------------------------- ------------------- --------------------
<S> <C> <C>
Nova Fund $259,900 $836,833
Ursa Fund $236,053 $284,054
OTC Fund $15,491 $20,402
Metals Fund $276,434 $415,695
Bond Fund $7,829 $18,172
Juno Fund $24,387 $40,740
Money Market Fund $0 $0
Banking Fund
Basic Materials Fund
Biotechnology Fund
Consumer Products Fund
Electronics Fund
Energy Fund
Energy Services Fund
Financial Services Fund
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE BROKERAGE COMMISSIONS
---------------------------------------------------------------------
FUND 1997* 1998 1999
- -------------------------------------------------- --------------------------- ------------------- --------------------
<S> <C> <C> <C>
Health Care Fund
Leisure Fund
Retailing Fund
Technology Fund
Telecommunications Fund
- -------------------------------------------------- --------------------------- ------------------- --------------------
Transportation Fund
- -------------------------------------------------- --------------------------- ------------------- --------------------
- -------------------------------------------------- --------------------------- ------------------- --------------------
</TABLE>
*For the nine-month period from July 1, 1996 to March 31, 1997
MANAGEMENT OF THE TRUST
The Trustees are responsible for the general supervision of the Trust's
business. The day-to-day operations of the Trust are the responsibilities of the
Trust's officers. The names and addresses (and ages) of the Trustees and the
officers of the Trust and the officers of the Advisor, together with information
as to their principal business occupations during the past five years, are set
forth below. Fees and expenses for non-interested Trustees will be paid by the
Trust.
TRUSTEES
*Albert P. Viragh, Jr. (58)
Chairman of the Board of Trustees and President of the Trust; Chairman
of the Board, President, and Treasurer of PADCO Advisors, Inc.,
investment adviser to the Trust, 1993 to present; Chairman of the
Board, President, and Treasurer of PADCO Service Company, Inc.,
shareholder and transfer agent servicer to the Trust, 1993 to present;
Chairman of the Board of Trustees of The Rydex Variable Trust, a
separate account of Great American Reserve Insurance Company, 1996 to
present; Chairman of the Board, President, and Treasurer of PADCO
Advisors II, Inc., investment adviser to the Separate Account, 1996 to
present; Chairman of the Board, President, and Treasurer of PADCO
Financial Services, Inc., a registered broker-dealer firm, 1996 to
present; Vice President of Rushmore Investment Advisors Ltd., a
registered investment adviser, 1985 to 1993. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
COREY A. COLEHOUR (53)
Trustee of the Trust and Rydex Variable Trust; 1996 to present; Senior
Vice President of Marketing of Schield Management Company, a registered
investment adviser, 1985 to present. Address: 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852.
- --------
*/ This trustee is deemed to be an "interested person" of the Trust,
within the meaning of Section 2(a)(19) of the 1940 Act, inasmuch as
this person is affiliated with the Advisor, as described herein.
22
<PAGE>
J. KENNETH DALTON (58)
Trustee of the Trust and Rydex Variable Trust; Manager of the Separate
Account, 1996 to present; Mortgage Banking Consultant and Investor, The
Dalton Group, April 1995 to present; President, CRAM Mortgage Group,
Inc. 1966 to April 1995. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
JOHN O. DEMARET (58)
Trustee of the Trust and Rydex Variable Trust; Founder and Chief
Executive Officer, Health Cost Controls America, Chicago, Illinois,
1987 to 1996; sole practitioner, Chicago, Illinois, 1984 to 1987;
General Counsel for the Chicago Transit Authority, 1981 to 1984; Senior
Partner, O'Halloran, LaVarre & Demaret, Northbrook, Illinois, 1978 to
1981. Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
PATRICK T. MCCARVILLE (56)
Trustee of the Trust and Rydex Variable Trust; Manager of the Separate
Account, 1997 to present; Founder and Chief Executive Officer, Par
Industries, Inc., Northbrook, Illinois, 1977 to present; President and
Chief Executive Officer, American Health Resources, Northbrook,
Illinois, 1984 to 1986. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
ROGER SOMERS (54)
Trustee of the Trust; Manager of the Separate Account, 1996 to present;
President, Arrow Limousine, 1963 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
OFFICERS
ROBERT M. STEELE (40)
Secretary and Vice President of the Trust; Vice President of PADCO
Advisors, Inc., investment adviser to the Trust, 1994 to present;
Secretary and Vice President of the Separate Account, 1996 to present;
Vice President of PADCO Advisors II, Inc., investment adviser to the
Separate Account, 1996 to present; Vice President of The Boston
Company, Inc., an institutional money management firm, 1987 to 1994.
Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
CARL G. VERBONCOEUR (46)
Vice President and Treasurer of the Trust; Senior Vice President,
Crestar Bank, 1995 to 1997; Senior Vice President, Crestar Asset
Management Company, a registered investment adviser, 1993 to 1995; Vice
President Perpetual Savings Bank, 1987 to 1993. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
MICHAEL P. BYRUM (29)
Assistant Secretary of the Trust; Employee and senior portfolio manager
of PADCO Advisors, Inc., 1993 to present; portfolio manager of The
Rydex OTC Fund (since 1997) and The Rydex U.S. Government Bond Fund
(since 1997), each a series of the Trust; Assistant Secretary of the
Separate Account, 1996 to present; Employee of PADCO Advisors II Inc.,
investment adviser to the Separate Account; Investment Representative,
Money Management Associates, a registered investment adviser, 1992 to
1993; Student,
23
<PAGE>
Miami University of Oxford, Ohio (B.A., Business Administration, 1992).
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
The aggregate compensation paid by the Trust to each of its Trustees serving
during the fiscal year ended March 31, 1999, is set forth in the table below:
<TABLE>
<CAPTION>
AGGREGATE PENSION OR ESTIMATED TOTAL
NAME OF PERSON, COMPENSATION RETIREMENT ANNUAL BENEFITS COMPENSATION
POSITION FROM TRUST BENEFITS ACCRUED UPON RETIREMENT FROM FUND
AS PART OF TRUST'S COMPLEX FOR
EXPENSES SERVICE ON TWO
BOARDS**
- ------------------------------ -------------------- ----------------------- --------------------- --------------------
<S> <C> <C> <C>
Albert P. Viragh, Jr.*, $0 $0 $0
CHAIRMAN AND PRESIDENT
- ------------------------------ -------------------- ----------------------- --------------------- --------------------
Corey A. Colehour, $0 $0
TRUSTEE
- ------------------------------ -------------------- ----------------------- --------------------- --------------------
J. Kenneth Dalton, $0 $0
TRUSTEE
- ------------------------------ -------------------- ----------------------- --------------------- --------------------
Roger Somers, $0 $0
TRUSTEE
- ------------------------------ -------------------- ----------------------- --------------------- --------------------
John O. Demaret, $0 $0
TRUSTEE
- ------------------------------ -------------------- ----------------------- --------------------- --------------------
Patrick T. McCarville,
TRUSTEE
- ------------------------------ -------------------- ----------------------- --------------------- --------------------
- ------------------------------ -------------------- ----------------------- --------------------- --------------------
</TABLE>
*Denotes an "interested person" of the Trust.
**Each member of the Board of Trustees also serves as a Trustee to the Rydex
Variable Trust.
As of the date of this Statement of Additional Information, the Trustees and the
officers of the Trust, as a group, owned, of record and beneficially, less than
____ of the outstanding shares of each Fund.
THE ADVISORY AGREEMENT
Under an investment advisory agreement the Advisor serves as the investment
adviser for each series of the Trust and provides investment advice to the Funds
and oversees the day-to-day operations of the Funds, subject to direction and
control by the Trustees and the officers of the Trust. As of June 30, 1999, net
assets under management of the Advisor were approximately ____ billion. Pursuant
to the advisory agreement with the Advisor, the Funds pay the Advisor the
following fees at an annual rate based on the average daily net assets for each
respective Fund, as set forth below:
For the fiscal periods ended March 31, 1997, March 31, 1998, and March 31, 1999
the Advisor received the following investment advisory fees:
24
<PAGE>
<TABLE>
<CAPTION>
ADVISORY FEES PAID
FUND
--------------------------------------------------------------------------------------
ANNUAL ADVISORY 1997* 1998 1999
FEE CONTRACTUAL
RATE
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
<S> <C> <C> <C>
Nova Fund 0.75% $1,812,740 $4,588,393
Ursa Fund 0.90% $2,070,135 $2,956,581
OTC Fund 0.75% $ 775,607 $2,529,352
Metals Fund 0.75% $ 185,396 $ 200,264
Bond Fund 0.50% $ 35,394 $ 91,744
Juno Fund 0.90% $ 30,573 $ 160,954
Money Market Fund 0.50% $ 671,957 $1,361,674
Banking Fund 0.85%
Basic Materials Fund 0.85%
Biotechnology Fund 0.85%
Consumer Products Fund 0.85%
Electronics Fund 0.85%
Energy Fund 0.85%
Energy Services Fund 0.85%
Financial Services Fund 0.85%
Health Care Fund 0.85%
Leisure Fund 0.85%
Retailing Fund 0.85%
Technology Fund 0.85%
Telecommunications Fund 0.85%
Transportation Fund 0.85%
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
</TABLE>
*For the nine-month period from July 1, 1996 to March 31, 1997
The Advisor manages the investment and the reinvestment of the assets of each of
the Funds, in accordance with the investment objectives, policies, and
limitations of the Fund, subject to the general supervision and control of the
Trustees and the officers of the Trust. The Advisor bears all costs associated
with providing these advisory services and the expenses of the Trustees of the
Trust who are affiliated with or interested persons of the Advisor. The Advisor,
from its own resources, including profits from advisory fees received from the
Funds, provided such
25
<PAGE>
fees are legitimate and not excessive, may make payments to broker-dealers and
other financial institutions for their expenses in connection with the
distribution of Fund shares, and otherwise currently pay all distribution costs
for Fund shares.
The Advisor, which has its office at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, was incorporated in the State of Maryland on
February 5, 1993. Albert P. Viragh, Jr., the Chairman of the Board of Trustees
and the President of the Advisor, owns a controlling interest in the Advisor.
THE SERVICE AGREEMENT
General administrative, shareholder, dividend disbursement, transfer agent, and
registrar services are provided to the Trust and the Funds by PADCO Service
Company, Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(the "Servicer"), subject to the general supervision and control of the Trustees
and the officers of the Trust, pursuant to a service agreement between the Trust
and the Servicer. The Servicer is wholly-owned by Albert P. Viragh, Jr., who is
the Chairman of the Board and the President of the Trust and the sole
controlling person and majority owner of the Advisor.
For the fiscal periods ended March 31, 1997, March 31, 1998, and March 31, 1999
the Funds paid PADCO the following service fees:
<TABLE>
<CAPTION>
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
SERVICE FEES PAID
------------------------------------------------------------
ANNUAL SERVICE 1997* 1998 1999
FUND FEE RATE
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
<S> <C> <C> <C>
Nova Fund 0.25% $606,411 $1,529,464
Ursa Fund 0.25% $575,038 $ 821,273
OTC Fund 0.20% $205,328 $ 674,494
Metals Fund 0.20% $ 49,439 $ 53,408
Bond Fund 0.20% $ 14,158 $ 36,617
Juno Fund 0.25% $ 36,374 $ 44,710
Money Market Fund 0.20% $268,855 $ 544,706
Banking Fund
Basic Materials Fund
Biotechnology Fund
Consumer Products Fund
Electronics Fund
Energy Fund
Energy Services Fund
Financial Services Fund
Health Care Fund
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
SERVICE FEES PAID
------------------------------------------------------------
ANNUAL SERVICE 1997* 1998 1999
FUND FEE RATE
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
<S> <C> <C> <C>
Leisure Fund
Retailing Fund
Technology Fund
Telecommunications Fund
Transportation Fund
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
- --------------------------------- ------------------------ ---------------------- ----------------- ------------------
</TABLE>
*For the nine-month period from July 1, 1996 to March 31, 1997
Under the service agreement, the Servicer provides the Trust and each Fund with
all required general administrative services, including, without limitation,
office space, equipment, and personnel; clerical and general back office
services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by the Trust and each Fund under Federal and
state securities laws. The Servicer also maintains the shareholder account
records for each Fund, disburses dividends and distributions payable by each
Fund, and produces statements with respect to account activity for each Fund and
each Fund's shareholders. The Servicer pays all fees and expenses that are
directly related to the services provided by the Servicer to each Fund; each
Fund reimburses the Servicer for all fees and expenses incurred by the Servicer
which are not directly related to the services the Servicer provides to the Fund
under the service agreement.
DISTRIBUTION
Pursuant to the Distribution Agreement adopted by the Trust, PADCO Financial
Services, Inc. (the "Distributor"), 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, acts as distributor for the Advisor Class Shares of
the Trust under the general supervision and control of the Trustees and the
officers of the Trust.
Under a Distribution and Shareholder Services Plan, Service Providers may use
their fees for: (i) compensation for its services in connection with
distribution assistance; or (ii) payments to financial institutions and
intermediaries such as banks, savings and loan associations, insurance companies
and investment counselors, broker-dealers, mutual fund supermarkets and the
Distributor's affiliates and subsidiaries as compensation for services or
reimbursement of expenses incurred in connection with distribution assistance.
The Distributor may, at its discretion, retain a portion of such payments to
compensate itself for distribution services and distribution related expenses
such as the costs of preparation, printing, mailing or otherwise disseminating
sales literature, advertising, and prospectuses (other than those furnished to
current shareholders of the Fund), promotional and incentive programs, and such
other marketing expenses that the Distributor may incur.
A Service Provider also may perform some or all of the following shareholder
services:
- maintaining accounts relating to clients that invest in shares;
- arranging for bank wires;
- responding to client inquiries relating to the services performed by the
Services Provider; o responding to inquiries from clients concerning
their investment in shares; o assisting clients in changing dividend
options, account designations and addresses;
27
<PAGE>
- providing information periodically to clients showing their position in
shares;
- forwarding shareholder communications from the Funds such as proxies,
shareholder reports, annual reports, and dividend distribution and tax
notices to clients; and
- processing dividend payments from the Funds on behalf of clients.
These shareholder services are different from the distribution services
discussed above, and are not primarily intended to result in the sale of the
Advisor Class Shares of the Funds.
COSTS AND EXPENSES
Each Fund bears all expenses of its operations other than those assumed by the
Advisor or the Servicer. Fund expenses include: the management fee; the
servicing fee (including administrative, transfer agent, and shareholder
servicing fees); custodian and accounting fees and expenses; legal and auditing
fees; securities valuation expenses; fidelity bonds and other insurance
premiums; expenses of preparing and printing prospectuses, confirmations, proxy
statements, and shareholder reports and notices; registration fees and expenses;
proxy and annual meeting expenses, if any; all Federal, state, and local taxes
(including, without limitation, stamp, excise, income, and franchise taxes);
organizational costs; non-interested Trustees' fees and expenses; the costs and
expenses of redeeming shares of the Fund; fees and expenses paid to any
securities pricing organization; dues and expenses associated with membership in
any mutual fund organization; and costs for incoming telephone WATTS lines. In
addition, each of the Funds pays an equal portion of the Trustee fees and
expenses for attendance at Trustee meetings for the Trustees of the Trust who
are not affiliated with or interested persons of the Advisor.
PRINCIPAL HOLDERS OF SECURITIES
As of July 1, 1999, the following persons were the only persons who were record
owners or, to the knowledge of the Trust, beneficial owners of 5% or more of the
shares of the Funds.
DETERMINATION OF NET ASSET VALUE
The net asset value of a Fund serves as the basis for the purchase and
redemption price of that Fund's shares. The net asset value per share of a Fund
is calculated by dividing the market value of the Fund's securities plus the
values of its other assets, less all liabilities, by the number of outstanding
shares of the Fund. If market quotations are not readily available, a security
will be valued at fair value by the Board of Trustees or by the Advisor using
methods established or ratified by the Board of Trustees.
For purposes of determining net asset value per share of a Fund, options and
futures contracts will be valued at 4:00 P.M., Eastern Time, close of regular
trading on the NYSE, except that futures contracts traded on the Chicago Board
of Trade ("CBOT") will be valued at 3:00 P.M., Eastern Time, the close of
trading of that exchange. Options on securities and indices purchased by a Fund
generally are valued at their last bid price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter ("OTC")
market, the average of the last bid price as obtained from two or more dealers
unless there is only one dealer, in which case that dealer's price is used. The
value of a futures contract equals the unrealized gain or loss on the contract
settlement price for a like contract acquired on the day on which the futures
contract is being valued. The value of options on futures contracts is
determined based upon the current settlement price for a like option acquired on
the day on which the option is being valued. A settlement price may not be used
for the foregoing purposes if the market makes a limit move with respect to a
particular commodity.
28
<PAGE>
On days when the CBOT is closed during its usual business hours, but the shares
of the Bond Fund or Juno Fund have been purchased, redeemed, and/or exchanged,
the portfolio securities held by the Bond Fund or Juno Fund which are traded on
the CBOT are valued at the earlier of (i) the time of the execution of the last
trade of the day for the Bond Fund or Juno Fund in those CBOT-traded portfolio
securities and (ii) the time of the close of the CBOT Evening Session. On days
when the CBOT is closed during its usual business hours and there is no need for
the Bond Fund or Juno Fund to execute trades on the CBOT, the value of the
CBOT-traded portfolio securities held by the Bond Fund or Juno Fund will be the
mean of the bid and asked prices for those CBOT-traded portfolio securities at
the open of the CBOT Evening Session.
OTC securities held by a Fund shall be valued at the last sales price or, if no
sales price is reported, the mean of the last bid and asked price is used. The
portfolio securities of a Fund that are listed on national exchanges are taken
at the last sales price of such securities on such exchange; if no sales price
is reported, the mean of the last bid and asked price is used. For valuation
purposes, all assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
the offered quotations of such currencies against U.S. dollars as last quoted by
any recognized dealer. If such quotations are not available, the rate of
exchange will be determined in good faith by the Advisor based on guidelines
adopted by the Trustees. Dividend income and other distributions are recorded on
the ex-dividend date, except for certain dividends from foreign securities which
are recorded as soon as the Trust is informed after the ex-dividend date.
Illiquid securities, securities for which reliable quotations or pricing
services are not readily available, and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Trustees, which procedures may include the delegation of
certain responsibilities regarding valuation to the Advisor or the officers of
the Trust. The officers of the Trust report, as necessary, to the Trustees
regarding portfolio valuation determination. The Trustees, from time to time,
will review these methods of valuation and will recommend changes which may be
necessary to assure that the investments of the Funds are valued at fair value.
The Money Market Fund will utilize the amortized cost method in valuing its
portfolio securities for purposes of determining the net asset value of its
shares even though the portfolio securities may increase or decrease in market
value, generally, in connection with changes in interest rates. The amortized
cost method of valuation involves valuing a security at its cost adjusted by a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument while
this method provides certainty in valuation, this method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Money Market Fund would receive if this Fund sold the instrument.
During such periods, the yield to investors in the Money Market Fund may differ
somewhat from that obtained in a similar company which uses mark-to-market
values for all its portfolio securities. For example, if the use of amortized
cost resulted in a lower (higher) aggregate portfolio value on a particular day,
a prospective investor in the Money Market Fund would be able to obtain a
somewhat higher (lower) yield than would result from investment in such a
similar company and existing investors would receive less (more) investment
income. The purpose of this method of calculation is to facilitate the
maintenance of a constant net asset value per share of $1.00.
The Money Market Fund's use of the amortized cost method is permitted pursuant
to Rule 2a-7 under the 1940 Act (the "Rule"). The Rule requires that the Money
Market Fund limit its investments to U.S. dollar-denominated instruments that
meet the Rule's quality, maturity and diversification requirements. The Rule
also requires the Money Market Fund to maintain a dollar-weighted average
portfolio maturity of not more than ninety days and precludes the purchase of
any instrument with a remaining maturity of more than thirteen months.
The Money Market Fund may only purchase Eligible Securities. Eligible Securities
are securities which : (a) have remaining maturities of thirteen months or less;
(b) either (i) are rated in the two highest short-term rating
29
<PAGE>
categories by any two nationally-recognized statistical rating organizations
("NRSROs") that have issued a short-term rating with respect to the security or
class of debt obligations of the issuer, or (ii) if only one NRSRO has issued a
short-term rating with respect to the security, then by that NRSRO; (c) were
long-term securities at the time of issuance whose issuers have outstanding
short-term debt obligations which are comparable in priority and security and
has a ratings as specified in (b) above; or (d) if no rating is assigned by any
NRSRO as provided in (b) and (c) above, the unrated securities are determined by
the Trustees to be of comparable quality to any rated securities.
As permitted by the Rule, the Trustees have delegated to the Advisor, subject to
the Trustees' oversight pursuant to guidelines and procedures adopted by the
Trustees, the authority to determine which securities present minimal credit
risks and which unrated securities are comparable in quality to rated
securities.
If the Trustees determine that it is no longer in the best interests of the
Money Market Fund and its shareholders to maintain a stable price of $1.00 per
share, or if the Trustees believe that maintaining such price no longer reflects
a market-based net asset value per share, the Trustees have the right to change
from an amortized cost basis of valuation to valuation based on market
quotations. The Money Market Fund will notify shareholders of any such change.
PERFORMANCE INFORMATION
From time to time, each of the Funds (other than the Money Market Fund) may
include the Fund's total return in advertisements or reports to shareholders or
prospective shareholders. Quotations of average annual total return for a Fund
will be expressed in terms of the average annual compounded rate of return on a
hypothetical investment in the Fund over a period of at least one, five, and ten
years (up to the life of the Fund) (the ending date of the period will be
stated). Total return of a Fund is calculated from two factors: the amount of
dividends earned by each Fund share and by the increase or decrease in value of
the Fund's share price. See "Calculation of Return Quotations."
Performance information for each of the Funds contained in reports to
shareholders or prospective shareholders, advertisements, and other promotional
literature may be compared to the record of various unmanaged indexes.
Performance information for the Nova Fund, the Ursa Fund, and the Metals Fund
may be compared to various unmanaged indexes, including, but not limited to, the
S&P 500 Index or the Dow Jones Industrial Average. Performance information for
the Metals Fund also may be compared to its current benchmark, the XAU Index.
Performance information for the OTC Fund may be compared to various unmanaged
indexes, including, but not limited to, its current benchmark, the NASDAQ 100
Index-TM-, and the NASDAQ Composite Index-TM-. The OTC Fund has the ability to
invest in securities not included in the NASDAQ 100 Index-TM- or the NASDAQ
Composite Index-TM-, and the OTC Fund's investment portfolio may or may not be
similar in composition to NASDAQ 100 Index-TM- or the NASDAQ Composite
Index-TM-. Performance information for the Bond Fund and the Juno Fund may be
compared to various unmanaged indexes, including, but not limited to, the
Shearson Lehman Government (LT) Index.
Such unmanaged indexes may assume the reinvestment of dividends, but generally
do not reflect deductions for operating costs and expenses. In addition, a
Fund's total return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper Analytical
Services, Inc. ("Lipper"), and CDA Investment Technologies, Inc., among others,
when Lipper's tracking results are used, the Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.
Performance figures are based on historical results and are not intended to
indicate future performance.
30
<PAGE>
In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of shareholder service appear in numerous
financial publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL
INVESTOR, MORNINGSTAR, INC., and similar sources.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of a Fund (other than
the Money Market Fund) to that of other mutual funds and to other relevant
market indexes in advertisements or in reports to shareholders, performance
for the Fund may be stated in terms of total return. Under the rules of the
Securities and Exchange Commission ("SEC Rules"), Funds advertising
performance must include total return quotes calculated according to the
following formula:
M
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years (1, 5 or 10); and
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5 or 10
year periods, at the end of the 1, 5, or 10 year
periods (or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and
will cover 1, 5, and 10 year periods or a shorter period dating from the
effectiveness of the Registration Statement of the Trust. In calculating the
ending redeemable value, all dividends and distributions by a Fund are
assumed to have been reinvested at net asset value as described in the
Trust's Prospectus on the reinvestment dates during the period. Total return,
or `T' in the formula above, is computed by finding the average annual
compounded rates of return over the 1, 5, and 10 year periods (or fractional
portion thereof) that would equate the initial amount invested to the ending
redeemable value.
For the one-year period ended March 31, 1999, for the five year period ended
March 31, 1999 and for the period from the respective commencement of
operations of the Funds to March 31, 1999, the average annual compounded rate
of return of the respective Funds (other than the Money Market Fund),
assuming the reinvestment of all dividends and distributions, was as follows:
INFORMATION ON COMPUTATION OF YIELD
THE BOND FUND
In addition to the total return quotations discussed above, the Bond Fund also
may advertise its yield based on a thirty-day (or one month) period ended on the
date of the most recent balance sheet included in the Trust's Registration
Statement, computed by dividing the net investment income per share of the Fund
earned during the period by the maximum offering price per Fund share on the
last day of the period, according to the following formula:
31
<PAGE>
a-b
--- 6
YIELD = 2 (cd + 1) -
1
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends; and
d = the maximum offering price per share on the last
day of the period.
Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (i) computing the yield to maturity of each obligation
held by the Bond Fund based on the market value of the obligation (including
actual accrued interest) at the close of business on the last day of each month,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest), (ii) dividing that figure by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation that is in the Bond Fund's portfolio (assuming a month of thirty
days), and (iii) computing the total of the interest earned on all debt
obligations and all dividends accrued on all equity securities during the
thirty-day or one month period. In computing dividends accrued, dividend income
is recognized by accruing 1/360 of the stated dividend rate of a security each
day that the security is in the Fund's portfolio. Undeclared earned income,
computed in accordance with generally accepted accounting principles, may be
subtracted from the maximum offering price calculation required pursuant to "d"
above.
The Bond Fund from time to time may also advertise its yield based on a
thirty-day period ending on a date other than the most recent balance sheet
included in the Trust's Registration Statement, computed in accordance with the
yield formula described above, as adjusted to conform with the differing period
for which the yield computation is based.
Any quotation of performance stated in terms of yield (whether based on a
thirty-day or one month period) will be given no greater prominence than the
information prescribed under SEC Rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing that
such performance data represents past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost of such
shares.
The Bond Fund's yield, as of March 31, 1998, based on a thirty-day base period,
was approximately ____%.
THE MONEY MARKET FUND
The Money Market Fund's annualized current yield, as may be quoted from time to
time in advertisements and other communications to shareholders and potential
investors, is computed by determining, for a stated seven-day period, the net
change, exclusive of capital changes and including the value of additional
shares purchased with dividends and any dividends declared therefrom (which
reflect deductions of all expenses of the Money Market Fund such as management
fees), in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, and dividing the difference by the
value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by 365 divided by 7.
32
<PAGE>
The Money Market Fund's annualized effective yield, as may be quoted from time
to time in advertisements and other communications to shareholders and potential
investors, is computed by determining (for the same stated seven-day period as
the current yield) the net change, exclusive of capital changes and including
the value of additional shares purchased with dividends and any dividends
declared therefrom (which reflect deductions of all expenses of the Money Market
Fund such as management fees), in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The Money Market Fund's annualized effective yield and annualized current yield,
for the seven-day period ended March 31, 1999, were _____% and _____%,
respectively.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the Money Market Fund in the future
since the yield is not fixed. Actual yields will depend not only on the type,
quality, and maturities of the investments held by the Money Market Fund and
changes in interest rates on such investments, but also on changes in the Money
Market Fund's expenses during the period.
Yield information may be useful in reviewing the performance of the Money Market
Fund and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which typically
pay a fixed yield for a stated period of time, the Money Market Fund's yield
fluctuates.
PURCHASE AND REDEMPTION OF SHARES
MINIMUM INVESTMENT REQUIREMENTS
Shareholders will be informed of any increase in the minimum investment
requirements by a new prospectus or a prospectus supplement, in which the new
minimum is disclosed. Any request for a redemption (including pursuant to check
writing privileges) by an investor whose account balance is (a) below the
currently applicable minimum investment, or (b) would be below that minimum as a
result of the redemption, will be treated as a request by the investor of a
complete redemption of that account. In addition, the Trust may redeem an
account whose balance (due in whole or in part to redemptions since the time of
last purchase) has fallen below the minimum investment amount applicable at the
time of the shareholder's most recent purchase of Fund shares (unless the
shareholder brings his or her account value up to the currently applicable
minimum investment).
TAX CONSEQUENCES
Note that in the case of tax-qualified retirement plans, a redemption from
such a plan may have adverse tax consequences. A shareholder contemplating
such a redemption should consult his or her own tax advisor. Other
shareholders should consider the tax consequences of any redemption.
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<PAGE>
SUSPENSION OF THE RIGHT OF REDEMPTION
The Funds may suspend the right of redemption or the date of payment: (i) for
any period during which the NYSE, the Federal Reserve Bank of New York, the
NASDAQ, the Chicago Mercantile Exchange ("CME"), the CBOT, or any other
exchange, as appropriate, is closed (other than customary weekend or holiday
closings), or trading on the NYSE, the NASDAQ, the CME, the CBOT, or any other
exchange, as appropriate, is restricted; (ii) for any period during which an
emergency exists so that sales of a Fund's investments or the determination of
its NAV is not reasonably practicable; or (iii) for such other periods as the
SEC may permit for the protection of a Fund's investors.
HOLIDAYS
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the CBOT,
and other U.S. exchanges are closed on weekends and on the following holidays:
(i) New Year's Day, Martin Luther King Jr.'s Birthday, President's Day, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day, Thanksgiving Day,
and Christmas Day; and (ii) the preceding Friday if any of these holidays falls
on a Saturday, or the subsequent Monday if any of these holidays falls on a
Sunday. Although the Trust expects the same holiday schedules to be observed in
the future, each of the aforementioned exchanges may modify its holiday schedule
at any time.
REDEMPTIONS IN-KIND
The Trust intends to pay your redemption proceeds in cash. However, under
unusual conditions that make the payment in cash unwise (and for the protection
of the remaining shareholders of the Fund) the Trust reserves the right to pay
all, or part, of your redemption proceeds in liquid securities with a market
value equal to the redemption price (redemption in-kind). The Trust has elected
to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which
the Trust is obligated to redeem shares for any one shareholder in cash only up
to the lesser of $250,000 or 1% of a Fund's net asset value during any 90-day
period. Although it is highly unlikely that your shares would ever actually be
redeemed in kind, you would probably have to pay brokerage costs to sell the
securities distributed to you.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and any distributions of net realized
capital gains from each of the Funds will be distributed as described in the
Trust's Prospectus under "Dividends and Distributions." All such distributions
of a Fund normally automatically will be reinvested without charge in additional
shares of the same Fund.
The Money Market Fund intends to declare dividends daily from net investment
income (and net short-term capital gains, if any) and distribute such dividends
monthly. Net income, for dividend purposes, includes accrued interest and
accretion of original issue and market discount, plus or minus any short-term
gains or losses realized on sales of portfolio securities, less the amortization
of market premium and the estimated expenses of the Money Market Fund. Net
income will be calculated immediately prior to the determination of net asset
value per share of the Money Market Fund.
The Trustees may revise the dividend policy, or postpone the payment of
dividends, if the Money Market Fund should have or anticipate any large
unexpected expense, loss, or fluctuation in net assets which, in the opinion of
the Trustees, might have a significant adverse effect on shareholders of the
Money Market Fund. On occasion, in order to maintain a constant $1.00 per share
net asset value for the Money Market Fund, the
34
<PAGE>
Trustees may direct that the number of outstanding shares of the Money Market
Fund be reduced in each shareholder's account. Such reduction may result in
taxable income to a shareholder of the Money Market Fund in excess of the net
increase (I.E., dividends, less such reduction), if any, in the shareholder's
account for a period of time. Furthermore, such reduction may be realized as a
capital loss when the shares are liquidated.
With respect to the investment by the Bond Fund in U.S. Treasury zero coupon
bonds, a portion of the difference between the issue price of zero coupon
securities and the face value of such securities (the "original issue discount")
is considered to be income to the Bond Fund each year, even though the Bond Fund
will not receive cash interest payments from these securities. This original
issue discount (imputed income) will comprise a part of the investment company
taxable income of the Bond Fund which must be distributed to shareholders of the
Bond Fund in order to maintain the qualification of the Bond Fund as a regulated
investment company (a "RIC") under Subchapter M of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), as described immediately below under
"Regulated Investment Company Status," and to avoid Federal income tax at the
level of the Bond Fund. Shareholders of the Bond Fund will be subject to income
tax on such original issue discount, whether or not such shareholders elect to
receive their distributions in cash.
REGULATED INVESTMENT COMPANY STATUS
As a RIC, a Fund would not be subject to Federal income taxes on the net
investment income and capital gains that the Fund distributes to the Fund's
shareholders. The distribution of net investment income and capital gains
will be taxable to Fund shareholders regardless of whether the shareholder
elects to receive these distributions in cash or in additional shares.
Distributions reported to Fund shareholders as long-term capital gains shall
be taxable as such, regardless of how long the shareholder has owned the
shares. Fund shareholders will be notified annually by the Fund as to the
Federal tax status of all distributions made by the Fund. Distributions may
be subject to state and local taxes.
Shareholders of the Money Market Fund will be subject to Federal income tax on
dividends paid from interest income delved from taxable securities and on
distributions of realized net short-term capital gains. Interest and realized
net short-term capital gains distributions are taxable to a shareholder of the
Money Market Fund as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares of the Money Market
Fund or in cash. Since the Money Market Fund's income is expected to be derived
entirely from interest rather than dividends, none of such distributions will be
eligible for the Federal dividends received deduction available to corporations.
Each of the Funds will seek to qualify for treatment as a RIC under the Code.
Provided that a Fund (i) is a RIC and (ii) distributes at least 90% of the
Fund's net investment income (including, for this purpose, net realized
short-term capital gains), the Fund itself will not be subject to Federal income
taxes to the extent the Fund's net investment income and the Fund's net realized
long- and short-term capital gains, if any, are distributed to the Fund's
shareholders. To avoid an excise tax on its undistributed income, each Fund
generally must distribute at least 98% of its income, including its net
long-term capital gains. One of several requirements for RIC qualification is
that the Fund must receive at least 90% of the Fund's gross income each year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of securities or foreign currencies, or other
income derived with respect to the Fund's investments in stock, securities, and
foreign currencies (the "90% Test"). Income from investments in precious metals
and in precious minerals will not qualify as gross income from "securities" for
purposes of the 90% Test.
35
<PAGE>
The Metals Fund, therefore, intends to restrict its investment in precious
metals and in precious minerals to avoid a violation of the 90% Test.
In the event of a failure by a Fund to quality as an RIC, the Fund's
distributions, to the extent such distributions are derived from the Fund's
current or accumulated earnings and profits, would constitute dividends that
would be taxable to the shareholders of the fund as ordinary income and would be
eligible for the dividends received deduction for corporate shareholders. This
treatment would also apply to any portion of the distributions that might have
been treated in the shareholder's hands as long-term capital gains, as discussed
below, had the Fund qualified as an RIC.
If a fund were to fail to qualify as an RIC for one or more taxable years, the
Fund could then qualify (or requalify) as an RIC for a subsequent taxable year
only if the Fund had distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the interest charge
mentioned below, if applicable) attributable to such period. The fund might also
be required to pay to the U.S. Internal Revenue Service (the "IRS") interest on
50% of such accumulated earnings and profits. In addition, pursuant to the Code
and an interpretative notice issued by the IRS, if the Fund should fail to
qualify as an RIC and should thereafter seek to requalify as an RIC, the Fund
may be subject to tax on the excess (if any) of the fair market of the Fund's
assets over the Fund's basis in such assets, as of the day immediately before
the first taxable year for which the Fund seeks to requalify as an RIC.
If a fund determines that the fund will not qualify as an RIC under Subchapter M
of the Code, the Fund will establish procedures to reflect the anticipated tax
liability in the Fund's net asset value.
SPECIAL CONSIDERATIONS APPLICABLE TO THE METALS FUND AND THE SECTOR FUNDS
In general, with respect to the Metals Fund and the Sector Funds, gains from
"foreign currencies" and from foreign currency options, foreign currency
futures, and forward foreign exchange contracts ("forward contracts") relating
to investments in stock, securities, or foreign currencies will be qualifying
income for purposes of determining whether the Fund qualifies as a RIC. It is
currently unclear, however, who will be treated as the issuer of a foreign
currency instrument or how foreign currency options, futures, or forward
contracts will be valued for purposes of the RIC diversification requirements
applicable to a Fund.
Under the Code, special rules are provided for certain transactions in a foreign
currency other than the taxpayer's functional currency (I.E., unless certain
special rules apply, currencies other than the U.S. dollar). In general, foreign
currency gains or losses from forward contracts, from futures contracts that are
not "regulated futures contracts," and from unlisted options will be treated as
ordinary income or loss under the Code. Also, certain foreign exchange gains
derived with respect to foreign fixed-income securities are also subject to
special treatment. In general, any such gains or losses will increase or
decrease the amount of the a Fund's investment company taxable income available
to be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of a Fund's net capital gain. Additionally, if such losses
exceed other investment company taxable income during a taxable year, a Fund
would not be able to make any ordinary dividend distributions.
The Metals Fund or Sector Funds may incur a liability for dividend withholding
tax as a result of investment in stock or securities of foreign corporations.
If, at any year end, more than 50% of the assets of a Fund are comprised of
stock or securities of foreign corporations, the Fund may elect to "pass
through" to shareholders the amount of foreign taxes paid by that Fund. The Fund
will make such an election only if that Fund deems this to be in the best
interests of its shareholders. If the Fund does not qualify to make this
36
<PAGE>
election or does qualify, but does not choose to do so, the imposition of such
taxes would directly reduce the return to an investor from an investment in that
Fund.
TRANSACTIONS BY THE FUNDS
If a call option written by a Fund expires, the amount of the premium received
by the Fund for the option will be short-term or long-term capital gain to the
Fund depending on the Fund's holding period for the underlying security or
underlying futures contract. If such an option is closed by a Fund, any gain or
loss realized by the Fund as a result of the closing purchase transaction will
be short-term or long-term capital gain or loss depending on the Fund's holding
period for the underlying security or underlying futures contract. If the holder
of a call option exercises the holder's right under the option, any gain or loss
realized by the Fund upon the sale of the underlying security or underlying
futures contract pursuant to such exercise will be short-term or long-term
capital gain or loss to the Fund depending on the Fund's holding period for the
underlying security or underlying futures contract.
With respect to call options purchased by a Fund, the Fund will realize
short-term or long-term capital gain or loss if such option is sold and will
realize short-term or long-term capital loss if the option is allowed to expire
depending on the Fund's holding period for the call option. If such a call
option is exercised, the amount paid by the Fund for the option will be added to
the basis of the stock or futures contract so acquired.
A Fund has available to it a number of elections under the Code concerning the
treatment of option transactions for tax purposes. A Fund will utilize the tax
treatment that, in the Fund's judgment, will be most favorable to a majority of
investors in the Fund. Taxation of these transactions will vary according to the
elections made by the Fund. These tax considerations may have an impact on
investment decisions made by the Fund.
Each of the Nova Fund, the Ursa Fund, the OTC Fund, the Arktos Fund, the Metals
Fund and the Sector Funds in its operations also will utilize options on stock
indexes. Options on "broad based" stock indexes are classified as "nonequity
options" under the Code. Gains and losses resulting from the expiration,
exercise, or closing of such nonequity options, as well as gains and losses
resulting from futures contract transactions, will be treated as long-term
capital gain or loss to the extent of 60% thereof and short-term capital gain or
loss to the extent of 40% thereof (hereinafter, "blended gain or loss"). In
addition, any nonequity option and futures contract held by a Fund on the last
day of a fiscal year will be treated as sold for market value on that date, and
gain or loss recognized as a result of such deemed sale will be blended gain or
loss.
The trading strategies of each of the Nova Fund, the Ursa Fund, the OTC Fund,
the Arktos Fund, the Metals Fund and the Sector Funds involving nonequity
options on stock indexes may constitute "straddle" transactions. "Straddles" may
affect the taxation of such instruments and may cause the postponement of
recognition of losses incurred in certain closing transactions. Each of these
four Funds will also have available to the Fund a number of elections under the
Code concerning the treatment of option transactions for tax purposes. Each such
Fund will utilize the tax treatment that, in the Fund's judgment, will be most
favorable to a majority of investors in the Fund. Taxation of these transactions
will vary according to the elections made by the Fund. These tax considerations
may have an impact on investment decisions made by the Fund.
A Fund's transactions in options, under some circumstances, could preclude the
Fund's qualifying for the special tax treatment available to investment
companies meeting the requirements of Subchapter M of the
37
<PAGE>
Code. However, it is the intention of each Fund's portfolio management to limit
gains from such investments to less than 10% of the gross income of the Fund
during any fiscal year in order to maintain this qualification.
BACK-UP WITHHOLDING
Each Fund is required to withhold and remit to the U.S. Treasury 31% of (i)
reportable taxable dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who is not exempt
from withholding and who fails to furnish the Trust with a correct taxpayer
identification number, who fails to report fully dividend or interest income, or
who fails to certify to the Trust that the shareholder has provided a correct
taxpayer identification number and that the shareholder is not subject to
withholding. (An individual's taxpayer identification number is the individual's
social security number.) The 31% "back-up withholding tax" is not an additional
tax and may be credited against a taxpayer's regular Federal income tax
liability.
OTHER ISSUES
Each Fund may be subject to tax or taxes in certain states where the Fund does
business. Furthermore, in those states which have income tax laws, the tax
treatment of a Fund and of Fund shareholders with respect to distributions by
the Fund may differ from Federal tax treatment.
Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this Statement of
Additional Information in light of the particular tax situations of the
shareholders and regarding specific questions as to Federal, state, or local
taxes.
OTHER INFORMATION
VOTING RIGHTS
You receive one vote for every full Fund share owned. Each Fund or class of a
Fund will vote separately on matters relating solely to that Fund or class. All
shares of the Funds are freely transferable.
As a Delaware business trust, the Trust is not required to hold annual
Shareholder meetings unless otherwise required by the Investment Company Act of
1940. However, a meeting may be called by Shareholders owning at least 10% of
the outstanding shares of the Trust. If a meeting is requested by Shareholders,
the Trust will provide appropriate assistance and information to the
Shareholders who requested the meeting. Shareholder inquiries can be made by
calling 1-800-820-0888 or 301-468-8520, or by writing to the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852.
REPORTING
You will receive the Trust's unaudited financial information and audited
financial statements. In addition, the Trust will send you proxy statements and
other reports. If you are a customer of a financial institution that has
purchased shares of a Fund for your account, you may, depending upon the nature
of your account, receive all or a portion of this information directly from your
financial institution.
SHAREHOLDER INQUIRIES
You may call 1-800-820-0888 or 301-468-8520 to obtain information on account
statements, procedures, and other related information.
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<PAGE>
COUNSEL
Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036, serves
as counsel to the Trust.
AUDITORS AND CUSTODIAN
____________________________________________, are the auditors and the
independent certified public accountants of the Trust and each of the Funds.
Star Bank, N.A. (the "Custodian"), Star Bank Center, 425 Walnut Street,
Cincinnati, Ohio 45202, serves as custodian for the Trust and the Funds under a
custody agreement between the Trust and the Custodian. Under the custody
agreement, the Custodian holds the portfolio securities of each Fund and keeps
all necessary related accounts and records.
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended March 31, 1998,
including notes thereto and the report of __________________________________. A
copy of the Trust's Annual Report to Shareholders (the "Annual Report") must
accompany the delivery of this Statement of Additional Information.
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<PAGE>
APPENDIX A
BOND RATINGS
Below is a description of Standard & Poor's Ratings Group ("Standard & Poor's")
and Moody's Investors Service, Inc. ("Moody's") bond rating categories.
STANDARD & POOR'S RATINGS
GROUP CORPORATE BOND RATINGS
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated "AA" also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from "AAA" issues only in small degree.
A - Bonds rated "A" have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated "BBB" are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated "BB" have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Bonds rated "B" have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated "CCC" have a currently identifiable vulnerability to default
and are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
MOODY'S INVESTORS SERVICE, INC.
CORPORATE BOND RATINGS
Aaa - Bonds rate "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to a "gilt-edged."
Interest payments are protected by a large or by an exceptionally stable margin,
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds rate "Aa" are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protections may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of
40
<PAGE>
greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in "Aaa" securities.
A - Bonds rated "A" possess many favorable investment attributes, and are to be
considered as upper medium grade obligations. Factors giving security principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds rated "Baa" are considered as medium grade obligations (I.E., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any longer period of time may be small.
Caa - Bonds rated "Caa" are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
41
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(b) Exhibits
<TABLE>
<S> <C>
(a)(1) Certificate of Trust of Rydex Series Trust (the "Registrant"
or the "Trust") incorporated herein by reference to Exhibit 1a
of Post-Effective Amendment No. 27 to this Registration
Statement filed on October 30, 1996.
(a)(2) Declaration of Trust of the Registrant incorporated herein by
reference to Exhibit 1b of Post-Effective Amendment No. 27 to
this Registration Statement filed on October 30, 1996.
(b) By-Laws of Registrant incorporated herein by reference to
Exhibit 2 of Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between Registrant and PADCO
Advisors, Inc. incorporated herein by reference to Exhibit 5a
of Post-Effective Amendment No. 27 to this Registration
Statement filed on October 30, 1996.
(d)(2) Sub-Advisory Agreement between PADCO Advisors, Inc. and
Loomis, Sayles & Company, L.P. incorporated herein by
reference to Exhibit 5b of Post-Effective Amendment No. 27 to
this Registration Statement filed on October 30, 1996.
(d)(3) Amendment to Advisory Agreement between the Registrant and
PADCO Advisors, Inc. dated March 16, 1998 filed on May 29,
1998.
(e) Distribution Agreement between the Registrant and PADCO
Financial Services, Inc. relating to the Adviser Class Shares
as filed on May 29, 1998.
(f) Not applicable.
(g) Custody Agreement between Registrant and Star Bank, N.A.
incorporated herein by reference to Post-Effective Amendment
No. 27 to Exhibit 8 of this Registration Statement filed on
October 30, 1996.
(h)(1) Service Agreement between Registrant and PADCO Service
Company, Inc. incorporated herein by reference to Exhibit 9c
of Post-Effective Amendment No. 27 to this Registration
Statement filed on October 30, 1996.
(h)(2) Portfolio Accounting Services Agreement between Registrant and
PADCO Service Company, Inc. incorporated herein by reference
to Exhibit 9d of Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(h)(3) Amendment to Service Agreement between Registrant and PADCO
Service Company dated March 16, 1998 as filed May 29, 1998.
</TABLE>
2
<PAGE>
ITEM 23. EXHIBITS (continued)
<TABLE>
<S> <C>
(i) Not applicable.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m)(1) Plan of Distribution for The Rydex Institutional Money Market
Fund incorporated herein by reference to Exhibit 15a of
Post-Effective Amendment No. 24 to this Registration
Statement, filed on October 27, 1995.
(m)(2) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, March 12, 1997 incorporated herein by
reference to Exhibit 15b of Post-Effective Amendment No. 24 to
this Registration Statement, filed on October 27, 1995.
(m)(3) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, June 23, 1997 incorporated herein by
reference to Exhibit 15c Post-Effective Amendment No. 24 to
this Registration Statement, filed on October 27, 1995.
(m)(4) Plan of Distribution for The Rydex High Yield Fund
incorporated herein by reference to Post-Effective Amendment
No. 26 to Exhibit 15d of this Registration Statement, filed on
September 11, 1996.
(m)(5) Plan of Distribution for The Rydex High Yield Fund, as revised
March 12, 1995 incorporated herein by reference to Exhibit 15e
of Post-Effective Amendment No. 24 to this Registration
Statement, filed on October 27, 1995.
(m)(6) Plan of Distribution for The Rydex High Yield Fund, as revised
June 23, 1997 incorporated herein by reference to Exhibit 15f
of Post-Effective Amendment No. 24 to this Registration
Statement, filed on October 27, 1995.
(m)(7) Shareholder Servicing Support Agreements between PADCO
Financial Services, Inc. and Selling Recipients in connection
with the Plan of Distribution for The Rydex Institutional
Money Market Fund incorporated herein by reference to Exhibit
15g of Post-Effective Amendment No. 25 to this Registration
Statement, filed on March 1, 1996.
(m)(8) Shareholder Servicing Support Agreement between PADCO
Financial Services, Inc. and Selling Recipients in connection
with the Plan of Distribution for The Rydex High Yield Fund
incorporated herein by reference to Exhibit 15h of Post-
Effective Amendment No. 26 to this Registration Statement,
filed on September 11, 1996.
(m)(9) Distribution Plan and Shareholder Servicing Agreement for
Advisor Class Shares is incorporated by reference to Exhibit
15i of Post-Effective Amendment No. 30.
(n) Not applicable.
(o) Rule 18f-3 Plan is incorporated by reference to Exhibit 18 of
Post-Effective Amendment No. 30.
</TABLE>
3
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following persons may be deemed to be directly or indirectly controlled by
or under the common control with the Registrant, a Delaware business trust:
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED AND/OR
CONTROLLED BY THE
STATE OF ORGANIZATION AND CONTROLLING PERSON OR
RELATIONSHIP (IF ANY) TO THE OTHER BASIS OF COMMON
COMPANY REGISTRANT CONTROL
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
PADCO Advisors, Inc. (the a Maryland corporation, a 80% of the voting securities
"Advisor) registered investment adviser, of the Advisor are owned by
and the Registrant's Albert P. Viragh, Jr., the
investment adviser Chairman of the Board of
Directors, the President, and
the Treasurer of the Advisor,
and 100% of the voting
securities are controlled by
Albert P. Viragh, Jr.
PADCO Service Company, a Maryland corporation, a 100% of the voting securities
Inc. (the "Servicer") registered transfer agent, and of the Servicer are owned by
the Registrant's shareholder Albert P. Viragh, Jr., the
and transfer agent servicer Chairman of the Board of
Directors, the President, and
the Treasurer of the Servicer
PADCO Financial Services, a Maryland corporation, a 100% of the voting securities
Inc. (the "Distributor") registered broker-dealer, and of the Distributor are owned
the distributor of the shares by Albert P. Viragh, Jr., the
of The Rydex Institutional Chairman of the Board of
Money Market Fund, a series Directors, the President, and
of the Registrant the Treasurer of the
Distributor
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
PADCO Advisors II, Inc. a Maryland corporation and a 100% of the voting securities
registered investment adviser are owned by Albert P.
(PADCO II is not otherwise Viragh, Jr., the Chairman of
related to the Registrant) the Board of Directors, the
President, and the Treasurer
of PADCO II
Rydex Advisor Variable a managed separate account the investment advisers for
Annuity Account (the of Great American Reserve the Separate Account and the
"Separate Account") Insurance Company, which is Registrant are under the
organized under the laws of common control of Albert P.
the State of Texas and is Viragh, Jr., the Chairman of
advised by PADCO II the Board of Trustees,
President, and Treasurer of
the Registrant
</TABLE>
* The principal business address for each of the aforementioned directors
and officers of PADCO Financial Services, Inc., is 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
ITEM 25. INDEMNIFICATION
The Registrant is organized as a Delaware business trust and is operated
pursuant to a Declaration of Trust, dated as of March 13, 1993 (the "Declaration
of Trust"), that permits the Registrant to indemnify its trustees and officers
under certain circumstances. Such indemnification, however, is subject to the
limitations imposed by the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended. The Declaration of Trust of the
Registrant provides that officers and trustees of the Trust shall be indemnified
by the Trust against liabilities and expenses of defense in proceedings against
them by reason of the fact that they each serve as an officer or trustee of the
Trust or as an officer or trustee of another entity at the request of the
entity. This indemnification is subject to the following conditions:
(a) no trustee or officer of the Trust is indemnified against any
liability to the Trust or its security holders which was the
result of any willful misfeasance, bad faith, gross
negligence, or reckless disregard of his duties;
(b) officers and trustees of the Trust are indemnified only for
actions taken in good faith which the officers and trustees
believed were in or not opposed to the best interests of the
Trust; and
5
<PAGE>
(c) expenses of any suit or proceeding will be paid in advance
only if the persons who will benefit by such advance undertake
to repay the expenses unless it subsequently is determined
that such persons are entitled to indemnification.
The Declaration of Trust of the Registrant provides that if indemnification is
not ordered by a court, indemnification may be authorized upon determination by
shareholders, or by a majority vote of a quorum of the trustees who were not
parties to the proceedings or, if this quorum is not obtainable, if directed by
a quorum of disinterested trustees, or by independent legal counsel in a written
opinion, that the persons to be indemnified have met the applicable standard.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Each of the directors of the Trust's investment adviser, PADCO Advisors, Inc.
(the "Advisor"), Albert P. Viragh, Jr., the Chairman of the Board of Directors,
President, and Treasurer of the Advisor, and Amanda C. Viragh, the Secretary of
the Advisors, is an employee of the Advisor at 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852. Albert P. Viragh, Jr. also has served (and
continues to serve) as: (i) the Chairman of the Board of Trustees and the
President of the Trust since the Trust's organization as a Delaware business
trust on March 13, 1993; (ii) the Chairman of the Board of Directors, the
President, and the Treasurer of PADCO Service Company, Inc. (the "Servicer"),
the Trust's registered transfer agent and shareholder servicer, since the
incorporation of the Servicer in the State of Maryland on October 6, 1993; (iii)
the Chairman of the Board of Directors, the President, and the Treasurer of
PADCO Advisors II, Inc. ("PADCO II"), a registered investment adviser, since the
incorporation of PADCO II in the State of Maryland on July 5, 1994; and (iv) the
Chairman of the Board of Directors, the President, and the Treasurer of PADCO
Financial Services, Inc. (the "Distributor"), the distributor of the shares of
The Rydex High Yield Fund and The Rydex Institutional Money Market Fund, each a
series of the Trust, since the incorporation of the Distributor in the State of
Maryland on March 21, 1996. Amanda C. Viragh also has served (and continues to
serve) as the Secretary of the Advisor, the Servicer, and PADCO II, and also as
the Assistant Treasurer of the Servicer.
ITEM 27. PRINCIPAL UNDERWRITER
(a) PADCO Financial Services Inc. serves as the principal underwriter for
the securities of (i) The Rydex Institutional Money Market Fund and The
Rydex High Yield Fund, each a series of the Registrant, (ii) The Rydex
Advisor Variable Annuity Account, a managed separate account of Great
American Reserve Insurance Company that is a registered investment
company advised by PADCO Advisors II, Inc., and (iii) the Adviser Class
of the Rydex Sector Funds and U.S. Government Money Market Fund but
does not currently serve as the principal underwriter for the
securities of any other investment company.
6
<PAGE>
(b) The following information is furnished with respect to the directors
and officers of PADCO Financial Services, Inc., the principal
underwriter for The Rydex Institutional Money Market Fund and The Rydex
High Yield Fund, each a series of the Registrant:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT
- ------------------ -------------------------- ---------------------
<S> <C> <C>
Albert P. Viragh, Jr. Chairman of the Board of Directors, Chairman of the Board
President and Treasurer of Trustees and President
Amanda C. Viragh Director None
Carl G. Verboncoeur
Michael P. Byrum Secretary Assistant Secretary
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and records required to be maintained and preserved by
Section 31(a) of the Investment Company Act of 1940, as amended, and Rules 31a-1
and 31a-2 thereunder, will be kept by the Registrant at 6116 Executive
Boulevard, Rockville, Maryland 20852.
ITEM 29. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Parts A and
B.
ITEM 30. UNDERTAKINGS
None
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 34 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Rockville, State of Maryland on the 1st day of June,
1999.
RYDEX SERIES TRUST
/s/ Albert P. Viragh, Jr.
--------------------------------------------
Albert P. Viragh, Jr., Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been duly signed below by the following persons in the capacities
on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Albert P. Viragh, Jr. Chairman of the Board of Trustees June 1, 1999
- ------------------------------- President, and Trustee
Albert P. Viragh, Jr.
/s/ Carl G. Verboncoeur Treasurer June 1, 1999
- -------------------------------
Carl G. Verboncoeur
* Trustee June 1, 1999
- --------------------------------
Corey A. Colehour
* Trustee June 1, 1999
- --------------------------------
J. Kenneth Dalton
* Trustee June 1, 1999
- --------------------------------
Roger Somers
* Trustee June 1, 1999
- --------------------------------
John O. Demaret
* Trustee June 1, 1999
- --------------------------------
Patrick T. McCarville
*By /s/ Albert P. Viragh, Jr.
- --------------------------------
Albert P. Viragh, Jr.
Attorney-in-Fact
</TABLE>
8
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
(a)(1) Certificate of Trust of Rydex Series Trust (the "Registrant"
or the "Trust") incorporated herein by reference to Exhibit 1a
of Post-Effective Amendment No. 27 to this Registration
Statement filed on October 30, 1996.
(a)(2) Declaration of Trust of the Registrant incorporated herein by
reference to Exhibit 1b of Post-Effective Amendment No. 27 to
this Registration Statement filed on October 30, 1996.
(b) By-Laws of Registrant incorporated herein by reference to
Exhibit 2 of Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between Registrant and PADCO
Advisors, Inc. incorporated herein by reference to Exhibit 5a
of Post-Effective Amendment No. 27 to this Registration
Statement filed on October 30, 1996.
(d)(2) Sub-Advisory Agreement between PADCO Advisors, Inc. and
Loomis, Sayles & Company, L.P. incorporated herein by
reference to Exhibit 5b of Post-Effective Amendment No. 27 to
this Registration Statement filed on October 30, 1996.
(d)(3) Amendment to Advisory Agreement between the Registrant and
PADCO Advisors, Inc. dated March 16, 1998 filed on May 29,
1998.
(e) Distribution Agreement between the Registrant and PADCO
Financial Services, Inc. relating to the Adviser Class Shares
filed on May 29, 1998.
(f) Not applicable.
(g) Custody Agreement between Registrant and Star Bank, N.A.
incorporated herein by reference to Post-Effective Amendment
No. 27 to Exhibit 8 of this Registration Statement filed on
October 30, 1996.
(h)(1) Service Agreement between Registrant and PADCO Service
Company, Inc. incorporated herein by reference to Exhibit 9c
of Post-Effective Amendment No. 27 to this Registration
Statement filed on October 30, 1996.
(h)(2) Portfolio Accounting Services Agreement between Registrant and
PADCO Service Company, Inc. incorporated herein by reference
to Exhibit 9d of Post-Effective Amendment No. 27 to this
Registration Statement filed on October 30, 1996.
(h)(3) Amendment to Service Agreement between Registrant and PADCO
Service Company dated March 16, 1998 filed on May 29, 1998.
(i) Not applicable.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m)(1) Plan of Distribution for The Rydex Institutional Money Market
Fund incorporated herein by reference to Exhibit 15a of
Post-Effective Amendment No. 24 to this Registration
Statement, filed on October 27, 1995.
(m)(2) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, March 12, 1997 incorporated herein by
reference to Exhibit 15b of Post-Effective Amendment No. 24 to
this Registration Statement, filed on October 27, 1995.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
(m)(3) Plan of Distribution for The Rydex Institutional Money Market
Fund as revised, June 23, 1997 incorporated herein by
reference to Exhibit 15c Post-Effective Amendment No. 24 to
this Registration Statement, filed on October 27, 1995.
(m)(4) Plan of Distribution for The Rydex High Yield Fund
incorporated herein by reference to Post-Effective Amendment
No. 26 to Exhibit 15d of this Registration Statement, filed on
September 11, 1996.
(m)(5) Plan of Distribution for The Rydex High Yield Fund, as revised
March 12, 1995 incorporated herein by reference to Exhibit 15e
of Post-Effective Amendment No. 24 to this Registration
Statement, filed on October 27, 1995.
(m)(6) Plan of Distribution for The Rydex High Yield Fund, as revised
June 23, 1997 incorporated herein by reference to Exhibit 15f
of Post-Effective Amendment No. 24 to this Registration
Statement, filed on October 27, 1995.
(m)(7) Shareholder Servicing Support Agreements between PADCO
Financial Services, Inc. and Selling Recipients in connection
with the Plan of Distribution for The Rydex Institutional
Money Market Fund incorporated herein by reference to Exhibit
15g of Post-Effective Amendment No. 25 to this Registration
Statement, filed on March 1, 1996.
(m)(8) Shareholder Servicing Support Agreement between PADCO
Financial Services, Inc. and Selling Recipients in connection
with the Plan of Distribution for The Rydex High Yield Fund
incorporated herein by reference to Exhibit 15h of Post-
Effective Amendment No. 26 to this Registration Statement,
filed on September 11, 1996.
(m)(9) Distribution Plan and Shareholder Servicing Agreement for
Advisor Class Shares is incorporated by reference to Exhibit
15i of Post-Effective Amendment No. 10.
(n) Not applicable.
(o) Rule 18f-3 Plan is incorporated by reference to Exhibit 18 of
Post-Effective Amendment No. 30.
</TABLE>
10
